How much should you charge for your products and services?
- A little more than you are now – and perhaps you’ll make bigger margins, and increase your profits?
- A little less than you are now – and perhaps you’ll make more sales, and increase your profits?
Whole PhDs have been dedicated to finding the best and most profitable price to sell an item for.
- Economists have scratched their heads, and decided it’s about “supply and demand” – although there continues to be debate around even that!
- Psychologists have developed theories on utility, and needs, and desire, and perceived value to explain how prices are driven.
- Mathematicians have developed entire fields of study – like ‘game theory’ – to predict and measure the effect and impact of actions in a market.
Forget about the meaning of life!…
…It seems like more of the worlds’ smart people have dedicated their lives to unlocking the mysteries of pricing strategy than almost any other mystery.
I can understand why…
It’s all about how we value ourselves – and how others value us too.
Money is all about the value society places on something. If we can charge more, we must be worth more. And that’s perhaps the clearest signal of our status in society.
The Bigger Upside
Almost universally, I believe people undervalue themselves, and charge too little for products and services.
And I believe there’s far more room for financial improvement around profit in increasing prices than reducing them.
For those reasons, let’s avoid the “Voodoo Economics” of reducing prices to increase profits – and start raising prices.
The easiest way to increase prices is to simply decide to increase them.
It’s scary – but the fear is only temporary.
A year ago a student of mine dug his heels in about applying this strategy.
“There’s no way our customers will pay more than $8,000 for our product.”
Since then, he’s made no mention of reducing his price back from $9,990 – a ~25% increase! The market proved it was willing to accept the new higher price, and his confidence in this price followed.
Simple Raises to Market Segments
If you’re worried about how existing customers will react if you raise your prices – don’t tell them yet.
Instead, raise your prices for new customers only.
Or for a particular industry segment.
Or for a single type of product to begin with.
How BIG Should The Raise Be?
Since we’re aiming for “10% wins” in the 7 Levers process, a 10% increase in prices is a good place to begin testing.
In most cases I’ve seen outside of highly competitive or commoditised markets, a 10% increase in prices results in no discernible decrease in customers – so 10% higher prices instantly increases profits by 10%.
You can always increase them by more than 10%.
“Sales Warlord” Gulliver Giles once said to me – “If you’re comfortable increasing your prices by $X, you should increase them by more – until you start to sweat a little.”
Worst case scenario, you’re going to bring your prices down – or better yet, increase the value of your offer so that it supports your new price point.
Sit Below Price Resistance
Be careful around psychological price resistance points.
Despite hovering around 99 cents for months, when fuel prices passed through $1 per litre in Australia, it made headline news.
When it passed through $1.10 per litre shortly after, it barely raised a whisper.
Certain prices evoke psychological resistance. Typically, it’s when the number at the front increases to a 1, 2, 5, or 7. (This is the reason why you see prices at $49, but rarely $50 – or $999 but rarely $1,000.)
So, as you increase prices, try to sit your price slightly below a psychological price resistance level (even if it means increasing it slightly to the next price resistance level point).
There’s one other powerful strategy that I want to share with you – the Spearhead Approach.
This approach gives the customer the option of paying more – or down-selling themselves to a lower priced option.
But this is something for another day.
For now – I want you to get the 7 Levers and the Growth Paradox whitepaper (if you don’t already have it) and start implementing these strategies yourself!