When most new businesses go about setting their pricing
model, they generally:
1. Look at what competitors are charging and set their
price somewhere near that price point (usually below, which
is most often a mistake)
2. Determine how much money they'd like to make over a
particular time period, determine how many projects they
can handle during this time period and calculate how much
they need to charge to reach their desired income level
3. Undercut every company in America to get the "pipeline"
flowing
What I'm about to tell you, because you've most likely
never heard it before, may strike you as odd and it may
even anger some of you.
All 3 of these methods are a waste of time!
There is really only one smart way to come up with a
pricing model, and that is by asking this one simple
question:
WHAT ARE MY TARGET CUSTOMERS WILLING TO PAY?
You see, by answering this one simple question, you are
shifting your mind out of its "Me, I, Mine" mode into the
mode that every forward-thinking business person should be
in, "What do they want and how much are they willing to pay
for it?"
To take a step back for a second, to realize how often we
are in "I, Me, Mine" mode, lets take a look at the very
nucleus of most businesses: deciding what products or
services to offer. All too often, I see clients who have
gone into business to provide a product or service that,
for whatever reason, they really wanted to provide. Had
these clients gone through the process of figuring out the
demand for a particular product or service BEFORE they set
out to provide it, some of them would be in much better
(i.e. profitable) positions than they are now.
So, back to pricing, if you can determine what people are
willing to pay for your product or service, you will be
much further ahead than everyone else in your field. When
you price yourself near your competition, or heaven forbid
at a price point LOWER than your competition, you're
assuming that your competition was smart enough to research
their price points. Well, I can assure you, in most cases
you are giving your competition way too much credit.
Try testing alternative pricing methods on potential
clients and keep raising prices until you hit severe
resistance. However, do not forget to keep a running tally
of overall revenue. Why? Because, as you raise your
prices, at some point you will begin to see some drop off
in clients who aren't willing to pay, which may start to
give you cold feet, but, what you must remember is that
even if you lose some of those potential clients, the
higher your price, the less clients you actually need to
hire you to make the same amount of money.
Lets look at a quick example:
- If I provide auto-detailing services for $50.00 per car,
and I get 100 new clients a month, I gross $5000.00 per
month.
- If instead of charging $50.00 per car, I charge $75.00
per car, I can gross the same $5000.00 per month by
detailing only 67 cars.
- Now, if I can get 50 people to pay $100.00 per car, then
I now have to service only half of the clients that I had
to at $50.00 per car, who I can undoubtedly give more
attention to, and I can still make the same $5000.00 per
month.
I don't know about you, but the third option makes me smile
a lot more than the first or even the second option.
So, before you make an arbitrary pricing decision, be sure
to think it through. I'd be willing to bet that most of
you aren't charging nearly what the market will bare …
trust me, or start raising your rates and see for yourself.
----------------------------------------------------
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Dicks, Esq. & Nick Nanton, Esq. are attorneys by trade and
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exclusively, to maximize exposure & income today while
custom tailoring a Success Plan for growth and opportunity
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