Special Report on Selling and Launching

Everything You Ever Wanted to Know About

Pricing

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Table of Contents

It’s Time to Get Paid ................................................................................................ 3

Common Pricing Questions .................................................................................... 3

Common Advice About Pricing .............................................................................. 4

What the Market Will Bear ................................................................................. 5

Loss Leadership ................................................................................................... 5

Freemium ............................................................................................................. 6

You Know More About Pricing Than You Think You Do ................................... 7

Where A Lot of People Go Wrong ........................................................................... 7

They worry that they won’t be competitive with high prices. ......................... 7

They fail to account for everything that goes into setting a truly fair price. 8

They don’t feel they deserve to charge premium prices. ................................ 8

Competing on Price vs. Competing on Value ........................................................ 9

Creating Options Is Good, Too .............................................................................. 10

Brass Tacks: What Goes Into A Good Price? ......................................................... 11

The Bare Minimum Doesn’t Sound That Great ............................................... 13

Raising Prices by Adding Value ......................................................................... 14

There’s No One Best Way ...................................................................................... 15

Resources ................................................................................................................ 16

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Everything You Ever Wanted to Know About Pricing

It’s Time to Get Paid

If you’re serious about running a business, you need to get paid. Probably not

right away, and maybe not as much initially as you know you’ll get in the

future – but you have to start somewhere.

The challenge is where to start and how to know you’re setting your prices

appropriately.

From our experience, pricing is the biggest hang-up for many of our

students! And understandably so.

For most people, a price is something someone else has decided on, and your

job is to determine if it’s fair and worth it to you. In most of our commercial

transactions, we’re in the role of buyer, so that’s how we look at things.

Often, it’s hard to figure out why something costs as much or as little as it

does. The process of deciding what a price should be and why is completely

backstage – and totally baffling.

Common Pricing Questions

When it comes to pricing your first product or service, some of these

questions may be running through your head:

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It’s enough to make your head spin! And meanwhile – your PayPal account

stays empty.

If you’re already up and running, setting prices and making sales, there are

still many things to consider at different points in your business. Maybe you

need to raise or lower your prices. Maybe a new competitor has arrived on the

scene. Maybe you’re developing something new.

In other words, questions about pricing never end. And your ability to run a

profitable business depends on your answers.

This report covers the most common mistakes and misconceptions about

pricing your products and services. Then, we’ll talk about how to set your

own prices, and give you some ideas to get started.

Common Advice About Pricing

Do a simple online search, and you’ll find volumes of tips and tricks, theories

and frameworks, formulas and calculations reviewing basic pricing principles.

Here are three that will likely catch your eye.

Should I try to undercut my competitors?

Should I make the price just enough to get by?

Do I position myself as a premium product or

service provider?

Should I offer a discount to get referrals?

How much is my time worth?

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What the Market Will Bear

This common pricing phrase means charging the highest

price that the market (your audience) will pay for. Think of

Internet service or cell phone service providers. You know

they’re charging as much as they think you’re willing to pay

– and not a penny less! Whenever there’s an opportunity for a price hike,

they charge more.

Not every company doing this is as distasteful as a telecom, of course.

Charging what the market will bear means getting the most possible for your

product or service, and an argument can be made that if it’s not worth it to

someone, they won’t buy it.

While this can be effective, it’s also lazy. Instead of thinking about how to

charge fairly for the value you’re providing and the work it represents, you

just pick the highest possible number and go to town.

Loss Leadership

Loss leadership is when you have many products or services

for sale, and you make a big splashy fuss over this ONE item

or element that’s such a good deal, anyone would be nuts to

pass it up.

Grocery and big box stores do this all the time. They put feature “specials” at

the top of their flyers, so people will come to the store expressly to get the

deal. And while the store will probably lose money on these highly discounted

items, they know they’ll profit from the other things people buy once they’re

in the store.

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An online equivalent would be a highly discounted or free initial offer. This is

especially common with mastermind groups or SaaS tools. Often, you’ll get

the first year at half price, or the first three months for free. This tends to

overcome resistance at the check-out page, and once signed up, many people

forget to cancel or resist letting go of a tool they’ve grown to depend on.

Another type of loss leader is a First Impression Incentive on an opt-in page,

a valuable download offered free to get someone onto your mailing list.

Eventually, subscribers will make a purchase, which more than pays for the

incentive.

Freemium

The freemium model means you make an initial level of your

product or service free, and then charge for a premium,

complete or better version of it. This is the darling strategy of technology

start-ups.

Freemium is different from loss leadership, because you’re truly giving

something away for free to as many people as possible for as long as they

want it – but the product or service is not as good in some pretty significant

ways as the paid version.

You’ll see this in games like Candy Crush – anyone can download it for free

and play as long as they like. But if you want the lollipop hammer, you’ll have

to put down some cash.

This is also common in WordPress plugins. A free version will do 90% of what

you need done, but the paid version will solve all your problems.

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You Know More Than You Think!

We won’t be focusing on any of these issues in this report (or any of the other

dozen or so formulae or calculations MBAs learn in economics). I just want to

show you how much you already know about pricing strategies. They’re part

of your everyday interactions on the Internet and in real life, and you can

generally guess the reasons behind certain pricing decisions.

So from here on out, we’re going to be talking about what you need to do to

reach your goals, and how to communicate value to your customers.

Where a Lot of People Go Wrong

Despite the mountains of literature, blog posts, college classes and more

about pricing, people go wrong all the time, and their businesses suffer for it.

Money is a difficult thing for a lot of people to talk about openly, and you can

see it in how they set their prices – or fail to do so. There are a few reasons

for this.

They worry that they won’t be competitive with high prices

New entrepreneurs worry that they have to compete on price and be the

lowest option to win in a crowded marketplace.

It’s easy to see why this happens – it’s scary to compete with dozens or

hundreds of other providers, particularly when they’re more experienced or

better known than you! But competing on price is a recipe for disaster. Your

competitors are always willing to offer a cheaper option. So forget about being

the least expensive option, and think instead about providing the most value

at a certain price.

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They fail to account for everything that goes into setting a truly fair price

This is another nasty issue. It’s easy to look at a service-based business and

say, “My overhead is tiny. I can charge a low rate, because it costs me little

more than my time and expertise.”

Not so.

First of all, your time and expertise cost something. You have to account for

all the hours not directly related to providing a service, like time spent

branding, building an audience and marketing, chasing down leads and

referrals, keeping your training up to date… the list goes on and on.

You need to make sure your income compensates for all the man-hours you

put into your business.

They don’t feel they deserve to charge premium prices

A big problem we see in our students is they don’t feel they deserve a high fee

for what they’re selling.

While their reasons are varied, it usually stems from a lack of self-confidence.

We can’t help you with self-confidence – at least not at the root level. But we

can give you advice if you don’t feel like you really deserve a high price tag:

Fake it.

Even if you don’t feel you deserve the rates that make your time and energy

worthwhile, act like you do. Calculate a fair price (we’ll show you how below),

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and stick to it. If you believe – or at least seem like you believe – in the

fairness of your prices, then others will, too.

Eventually, you’ll start to think you’re worth it. (Spoiler: You probably are!)

Competing on Price vs. Competing on Value

Let’s look more closely at the issues surrounding competitive pricing.

Unless you’re selling commodities, price is not the best place to compete. (A

commodity is something easily obtainable, and is the same across most

spectrums. Gum and soda are good examples.)

It’s far better for your business and customer relationships to compete on

value.

Of course, to do that you need to make the mental switch from thinking about

volume (how to get a higher number of customers so you can break even),

and start thinking about the benefits and outcomes you’re providing – and

what those outcomes and benefits are really worth.

Because you’ve built a relationship with your audience, you have insight into

how your offer either solves their problems or creates delight for them. This

allows for premium pricing. And it allows you to charge a high price that still

feels fair, since you’re offering so much value.

At the end of the day, when it comes to your business, you’re worth what you

get paid.

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Creating Options Is Good, Too

People can’t resist an obviously excellent deal (especially when they’re buying

online).

Have you ever found yourself looking at a price list and saying to yourself,

“Obviously THIS is the absolute best way to go!”

The vendor engineered that choice for you.

You see this most frequently when there are multiple options for buying

something, usually in the context of different levels of service.

Let’s say you want to offer group coaching and decide that the standard group

coaching rate is going to be $100 a month. You also have a mastermind group

for $40 a month. BUT if someone signs up for your group coaching, they can

get it PLUS the mastermind for $120 a month.

When these three options are presented, a couple of things happen in your

customer’s brain. They think:

“Hmmm… group coaching will really help me, but the

mastermind group is a great way to network with more

business owners – and I can SAVE money if I get them

together!”

So whenever possible, provide tiers of related services. More of your potential

customers will fall into the different categories you create if you give them

options that match what they want. And feed the desire to get a bargain!

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Whenever possible, provide tiers of related services.

Brass Tacks: What Goes Into A Good Price?

When you’re setting a price, the barest of bare minimums is your ability to

recoup your costs. Let’s start with that goal in mind, and then move on to

adding value for a higher rate.

What does it cost you to produce something to sell?

Start by listing any tools, products, or materials that go into making a sale.

That can include:

Actual materials (like flour, butter, sugar, eggs, and chocolate chips, if

you were a baker)

Your time (1 hour/100 cookies)

These are the things you can identify, pin down, and work with. There are

other costs to consider, like rental space, marketing and advertising, long-

lasting equipment, etc., but we’ll get into those later.

If you know that the cost to produce 100 cookies is:

$5 for materials

$25 for 1 hour of your time to make 100 cookies

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… then the basic cost is $30 ÷ 100 cookies,

or 30 cents per cookie. This is the amount

of money you’ll spend to make the

cookies.

If you sell services, and particularly if you sell your time directly, this model

looks different, because you have more ongoing expenses, and your fixed

costs are more nebulous.

In the case of a consultant, you know that providing one hour of consulting

entails one hour of prep work, one hour for the consulting call, and one hour

for follow-up. This means the basic price you charge has to cover, at the

minimum, three hours of your time.

If you think a fair rate for yourself is $25 per hour, then you need to charge at

least $75 for a one-hour consulting session. (Feel free to use a service like

Salary.com to see what a standard acceptable wage is in your area, if you’re

not sure how to value your time.)

Preparation = 1 hour

The Consultation = 1 hour

Follow-up = 1 hour

TOTAL TIME = 3 hours

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Unlike employees, consultants and freelancers pay for all the costs of making

the sale come – but in most areas you can write off at least some of them at

tax time.

The Bare Minimum Doesn’t Sound That Great

It isn’t!

We just detailed your real costs for each sale you make, plus how much you

need to charge to cover those costs. Now let’s explore ways you can increase

the price to add value – so you can turn a profit!

This means making a few educated guesses about how many clients or

customers you’re likely to have (or need) in order to break even, which you

can use to break down your ongoing costs to make sure they’re covered as

well.

Ongoing costs are things like:

service subscriptions

equipment that lasts a long time

rent

bills that have to be paid regularly

Let’s say your ongoing costs add up to $25 per hour of consulting.

In our consulting example, it takes at least $75 to break even on a one-hour

consulting call. When you consider the additional ongoing cost of $25 per

sale, then the amount needed to cover costs on a per-transaction basis is now

$100.

So you could charge $100 per consulting hour and roll merrily along for some

time – but it’s hard to grow that way.

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To get more bang for your buck, you can either reduce the cost of producing

your product or service (therefore making each sale more profitable), or

increase your price by charging more.

Cost saving is a widely discussed topic, so let’s focus on raising prices and

adding value.

Raising Prices by Adding Value

Now that you know the base amount you need to stay in business, the trick is

to stop thinking about yourself and start thinking about the value you’re

bringing to your customers.

What is the value of the benefit you’re bringing to your clients and

customers? How much time and trouble are you saving them? How much

more delight will they be getting?

This is, admittedly, a difficult thing to pin down, and it will take some

practice.

Now is a good time to look at what similar businesses are charging for a

similar deliverable. After the calculations you’ve just made, their prices

should seem more understandable, and you can draw from what’s happening

in the industry to inform your own pricing decisions.

A good rule of thumb is to take your base price and add 50%.

Just see what the number looks like. Is it in line with the industry? Do you feel

comfortable asking for it? Does it match the benefits and outcomes your client

will be receiving?

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If so, it’s a good starting place. If not, try a couple of different prices on your

friends and family, get their inputs, and practice explaining why you’re worth

that much. Keep in mind, it’s always easier to lower your prices than to raise

them, so don’t shy away from higher prices.

Then just get out there and do it!

There’s No One Best Way

When it comes to setting your prices, no single strategy is best. Different

techniques work for different people, and sometimes you do need to bow to

market forces (like your customer’s willingness to pay).

But at a minimum, your prices should allow you to make a living in a

reasonable amount of time and with reasonable effort. You do that by

increasing the value your customer feels they get when they purchase from

you.

Don’t undercut yourself just because a bunch of freelancers charge pennies on

the dollar. You’re worth more than that!

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Resources

Communicate with Your Customers to Make them See the Value of What You

Offer

3 Landing Page Ideas That Can Fix Your Low Subscription Rates

How To Be Successful In Business and the Myth of Instant Success

Effective Landing Pages for Online and Offline Businesses

The Chain of Conversion: Understanding Your Customer Lifecycle

How to Get More Subscribers - LOTS More - By Tomorrow

Avoid the Mistake That Even @Copyblogger, @ThinkTraffic and

@DerekHalpern are Making by Using a Value Proposition Template