Pricing is one element of the marketing/business mix that has the least focus placed on it, yet has huge impact on profitability and how people perceive you.
Organisations spend years developing products, programs and services, months developing campaigns to promote them and very little time on deciding how much they are going to charge for them.
Here are two examples I have observed from businesses in my neighbourhood that provide insights for all of us that have to decide on a price.
Getting it right
The local dry cleaner recently put up its prices by 50% overnight. They must be joking I thought. They were not! It was probably the best business decision they had ever made. Without having to do any more work, their revenue increased by 50% and their profitability, I estimate, by around 100% simply because they had the guts to make the decision to increase their price. They are still as busy as before because the new price still represents value to the customer.
Getting it wrong
A men’s hair salon charges $15 a cut and is always busy with people waiting in line. They are trying to compete on price (competitors charge $25). If they put their price up to say $19 this would still represent value and have a huge impact on profitability with no greater effort required. They may lose a few customers, but they might also attract some new customers who don’t want too cheap a haircut.
Factors to consider when deciding on your price and how much to ask for:
Know your market – undertaking detailed research on market comparisons – your competitors – will give you great insight as to what to charge. Have you done enough research to justify your pricing?
Recognise your audience’s ability to pay – asking a multi millionaire for a $5,000 donation is a missed opportunity, as is asking a multinational company with large budgets to support a small local initiative when you have bigger national opportunities available
Consider tangible and intangible elements – add up the value of all the tangible elements that form part of what you offer and could be purchased individually and consider the value of association with your brand to your prospect
What the prospect is spending elsewhere to achieve an outcome you can deliver more effectively – if a prospect is spending big $ on an advertising campaign to speak to an audience that you can deliver face to face, this provides a point of comparison
The problem you are helping solve – helping a major national company that has a negative perception in the community enhance its perception is of huge value to that company, so make sure you charge them appropriately for the real benefit you are delivering to them
The lifetime value you can help generate – calculate the lifetime value that you can help a prospect gain from securing one new piece of business through a relationship with you (lifetime value being the value of one client x number of years they stay with you)
Calculate your cost of delivery and your margin – there is little point in bringing on board lots of new business if the cost of delivering it is high. I notice that people tend to leave out wage costs from this equation; all costs must be factored in to get the true picture of profitability
There is no right or wrong price and determining that price is not an exact science. Considering the questions above will help you arrive at a considered and justifiable price
Be ready to explain the real value – if your prospect is spending big $ on an advertising campaign to speak to an audience that you can deliver face to face at an event, you must be able to clearly explain the value of face to face interaction over advertising
Price contributes to positioning – if you don’t want to look cheap, don’t be cheap
Discounting will cause you problems – as people will expect a similar discount the following year
Don’t regret it before you start – never start a business relationship where you don’t feel you are getting a fair return for what you are offering. You will end up cutting corners to justify your price reduction and you will deliver a less than best experience to the client who then won’t come back and will tell others not to either
Have guts – have the guts to ask for what you believe you are worth. If you don’t ask; you won’t get
Finally and perhaps most importantly…
Be prepared to walk away – find people that value what you have to offer, where you can generate a long term worthwhile and viable relationship for both parties