One of the most important decisions an entrepreneur makes is how to price their products or services.
Get your pricing strategy wrong and you will create a problem which could damage your business.
Get it right and the potential for creating a thriving business becomes much greater.
But what, you may be asking yourself, has this to do with attracting clients? In fact it goes right to the very heart of you and your business; it’s all to do with how your value yourself. Having an attitude of abundance and seeing money as a flow of energy changes the relationship you have with it and subsequently how you price your services and products. In this the fourth in a series of articles about attracting the right type of clients we review pricing, from the practical to the psychology of how you define what you’re worth.
What’s your price?
There is no universal standard when it comes to pricing. In my experience you will never find two businesses who take the same approach to pricing. Pricing services is more difficult than pricing products as you can often identify the cost of making a physical product. So how do you take the guesswork out of pricing?
- Establish what costs you need to cover in order to run a stable business; material, labour and overhead costs. Make sure you include your salary – you can’t live on thin air.
- Add profit into your calculation and treat it like a fixed cost the way you would a loan, none of us want to be in the ‘just getting by’ business.
- Carry out market research to understand what the market will bear for your products/services, don’t just leave it to chance.
- You need to be aware of what your competitors are charging but avoid competing on price. You do not want to end up in a price war but at the same time part of pitching for business is about proving why your product/services provides greater value than your competitor and therefore why you can charge a higher premium. Also, do you want to define yourself by your competitors’ pricing? At the very least, how do you know they are any good at it?
- Look at the wider issues such as the economy and how that might affect the buying patterns of your clients and potential clients.
- Review your prices on a regular basis especially when you introduce a new product line or service offering.
What you charge comes from how you’re perceived
Perception often plays a key role in business owners setting prices for their products and/or services. It defines how your client views the value of what you are offering. Some entrepreneurs will purely use this approach when considering what prices to set. However, relying on this perceived value can come with its own risks. A common error is when the perceived value of your offering is far greater than your client’s acceptance of that perception. Business owners that understand the role psychology plays in pricing strategies come out on top.
- The perception of savings: A product that sells for £9.99 does better than a product that sells for £10.00. Customers look more favourably on prices that end with 99p although we are only talking about 1p difference. Also customers tend to focus on the first figure so £9 is cheaper than £10.
- The perception of value: This is where business owners bundle their offering together e.g., buy one, get one free, buy ‘service A’ and get not one but three further bonus items. The client feels that they are getting more for a lesser price.
- The perception of discount: Discounts always attract clients, 75% off never fails to attract buyers. People love that they are saving money and getting good value. What price would you put your service offering at if you knew you were going to offer a 75% discount to attract new clients?
- The perception of unbundling: This is where you create the option for your clients to make routine payments. By making the cost to customers small it becomes trivial and a no-brainer, even if the end result means they end up paying slightly more.
Value yourself and reflect it in your prices and the clients you attract.
The final section of this article looks at your relationship with money and how that relationship affects how you price your services and subsequently how you attract the type of clients you currently have on your list.
Many years ago I worked for an organisation that pioneered executive coaching in the UK. I worked for the company for nine years and loved every minute of it. I still keep in contact with many of the coaches. When I started working for myself, I met up with one of the coaches and found out that his hourly charge out rate for coaching was £800 an hour. I was amazed. Do you know how quickly one hour goes? It seems a lot quicker than the actual 60 minutes. Admittedly he coaches people in the City at CEO and MD level and has 16 years coaching experience plus a wealth of industry qualification, training and business experience behind him. But I also know really good coaches who charge £60 per hour. So how can some coaches charge £800 per hour and others £60 per hour? There are definitely factors that come into play such as experience and expertise but why is the gap so big? I recently read an article that stated that most female self-employed entrepreneurs undercharge for their services and products; the main reason for this is they do not fully value themselves. This makes it difficult to price correctly when a core belief of self-worth comes into play. A very simple exercise you can carry out to ascertain how you view your pricing is to think about the cost of your product/services then double it, then treble it. How does that feel? Can you imagine advising a prospective client tomorrow the price of your services/products which are three times greater than what they are today? This is a very basic exercise and doesn’t take into account many of the practical factors of pricing but it’s a good measure to test how you feel about it. When I first did this exercise it made me very nervous. I then attended a workshop carried out by Real Coaching Solutions looking at the Flow of Money. Within a week of attending that workshop I landed my largest client at the right fee!
How we view money plays an important role in attracting the right type of clients. How many of us base our fees upon time rather than the value we provide others? Being conscious of how you think, feel and speak about money will determine your level of success. We need to get more comfortable with talking about money and not let it become a taboo subject. Money is like a flow of energy, flowing in and out of our life. If we become too scared to spend it we block the flow of energy. If we don’t respect it and are not committed to making it grow it will not provide us with its continual flow.
If you want to get to grips with money and banish those negative views try the following:
- On a piece of paper create two columns; write down everything that you associate negatively with money in one column. In the other, write done the opposite including the opportunity it provides. If it helps work with a business colleague or friend so that you can really challenge your thinking on this.
- Cut the piece of paper into two columns. Destroy the column with all the negative words on it. Read the positive list at least once a week if not more. See how your view on money starts to shift.
- Consider if money was a person what characteristics would you like them to have? Would you like them to be respectful, committed, dependable, fun? Would you like them to pay on time, have funds to buy your services? Imagining money as someone you might do business with helps you define how your relationship with it should be constructed.
- Set an intention every day and write it down. The more positive you become about money the more positive an experience you will have with it.
- If you have negative thoughts, for example, you may feel that you do not deserve to have a thriving business, then change that thought and replace it with a positive one, for example, I deserve to have a thriving business where my clients pay my fees easily and effortlessly.
- Keep a gratitude journal – remembering all the good things that happen keep you in that positive space.
When we understand that money is energy then we can start to focus on directing that energy flow into our lives. Money is not the only thing that makes the world go round but if you want to have an abundance of it coming into your life then it needs to be fairly high on the list. If it is part of your ambition to turn your “getting by” business into a thriving one then think about what might be standing in your way. Is it money? If you value yourself and your business quite cheaply then why should your clients do any different? Thinking, acting and speaking positively about money will keep the flow entering your life