Disclaimer: I actually learned these tips from Benjamin Hart.
Getting to know how much to charge your clients or customers is a dilemma you might often face if you’re in the business of selling products or offering services.
Most businesses find it hard solving this puzzle.
But different individuals and businesses have even come up with different theories and conclusions on arriving at the prices they could charge for their products or services.
Most businesses answer this question by figuring out how much it costs them to produce the product or to provide or render the service, and then marking it up 15 percent or 20 percent.
If they find a cheaper way to produce or provide the same product or service, then they cut their prices to stay in line with their lower cost of production.
Other businesses look at what their competitors are charging and go on to charge about the same.
“Industry standard” is a phrase you hear a lot in certain fields when the subject of prices comes up.
These are all poor ways to set your prices.
The correct answer is:
“You should charge what your customers are WILLING to pay.”
Now, how then do you determine what your customers will pay?
What your customers will pay depends entirely on their perception of the value they are receiving.
If you get a Gucci handbag, and then look for a very smart local bag maker to make something that looks exactly like it in quality and size…but you put a logo of your company on it.
Can you sell it at the same price the Gucci bag that looks exactly like it sells?
But conversely, if perchance your local bag maker is contracted and given a franchise by Gucci to produce and sell bags in Gucci’s name, with Gucci’s logo, branding, etc…
Don’t you think you can then be able to sell the same bag now for the normal Gucci’s price?
Given people’s instincts and great sense of bargaining…
…who could think some people would prefer to buy drinks at high exorbitant prices at top class restaurants…
…when they could easily get those same exact drinks at roadside shops at huge fractions of what they’re getting at the high-class restaurants?
It all burn down to nothing but…values.
About the only thing Gucci has to its brand, in my estimation, is its staggering high price.
Gucci is not really selling anything but status.
People buy at those top-class restaurants mostly for a reason – the experience.
They sell social life.
They sell prestige.
They sell exclusivity.
These are but some of the reasons people are willing to buy at multiple the prices of what they would get somewhere else.
Not really because the products or services are much better, or better at all.
It’s all in the marketing, in the positioning of the products or services in people’s minds.
So, again, the answer to how much you should charge is how much people are willing to pay.
You can’t charge a penny more.
You are wounding yourself grievously if you charge less.
You are literally giving money away if you are charging less than people are willing to pay.
Remember, you are not a charity. You are a business.
You are in business to make a profit.
Make your charitable work a separate activity, something you do outside your business.
So now, the correct phrasing of the question is not: “how much should I charge?”
The real question is: “how can I find out how much people are willing to pay?”
And the short answer is: “trial and error.”
In direct marketing, we are always conducting price tests.
Quite often, the higher price might actually produce a higher rate of response, or no response at all.
Very often, raising your prices actually improves the perception of your clients and customers about you.
You had to raise your prices because you are in so much demand.
You are in so much demand because you are the best.
Raising your prices can help re-position yourself in the minds of your customers.
We’re no longer the cheap low-end service.
We must charge more because we attend fanatically to every detail.
We are involved in “the relentless pursuit of excellence.”
Yet, of course, you must be ready to meet up on this promise.
But even before you undertake any new re-positioning of yourself in the minds of your customers, which is a major task…
…you should almost certainly try raising your prices 10 per cent today…
…and then another 10 per cent in six months.
Then see what happens.
If too many customers start walking out of the door and if you find trouble finding new customers…
…you’ll know you’ve raised your prices too much or too quickly.
Your customers are almost certainly willing to pay more than you are now charging; even if that’s the only thing you’re going to change in your business right now.
But the really big money is to get completely away from any discussion of price…
…to begin the process of re-positioning yourself in the minds of your customers as the best alternative of what you do (better than your competitors).
You don’t want to market yourself as the cheapest doctor, the cheapest lawyer, the cheapest plumber, the cheapest hair salon, the cheapest mechanic, the cheapest seller of anything.
You want to market yourself as the best – as Number One in your field or your industry.
Of course, you must be worthy of this positioning.
Let’s continue this discussion in the second part of this post.
I hope you find this post helpful? If you do, endeavour to drop a line or two sentences of thoughts in the comments section below.