Price is a mysterious thing. There are literally hundreds of options for how you price your product or service. You do not have to always charge the least expensive price in order to get business. In fact, I don’t think you should ever be in a position where you have to compete on price.
Many people do not “price shop” with professionals such as dentists, attorneys, or CPAs. In some cases, people will actually associate the highest price with the one who will provide the best service. Some buyers will ALWAYS pay the highest price.
If you are in a “commodity” business where everybody sells the same product or service and the only difference is price, then all you need to do is find a way to make yourself different so you do not have to compete on price. You need to offer something in addition to the commodity or provide a service that goes above and beyond what everyone else is offering.
This is How it Works
I work with a Chiropractor who is located in an area with dozens of competing Chiropractors. His prices are higher than everyone else in the area … in fact, his customer lifetime value is right at $10,000 after just 6 months! His service may be looked at as a commodity, but he is a savvy marketer and has chosen to NOT compete on price and instead, to differentiate himself from the other Chiropractors in his area.
Take a look at a hair salon, as an example. If you drove around your town and visited the different salons, you’d find a very different group of people at one salon versus another. Some people want to go to the most expensive salon in town. Others want to find the cheapest shop. The people at the expensive salon make more money and work less than the people at the inexpensive salon.
One salon owner chooses to compete based on price and the other chooses to differentiate the shop and only appeal to those who have money.
The Good Ones Will Stay
If you are afraid of scaring off your customers with prices that are too high, remember the following:
a. You can always lower prices or give discounts IF you end up pricing your services too high.
b. It is much easier to lower prices than it is to raise them, so start high.
c. Usually it is the “annoying” customers who are more motivated by price. If you raise your prices, you should be able to easily get rid of many of the “problem” customers. Would you really miss them anyway?
Odds are, you are not currently charging as much as you can for your product or service. If you are in a unique business, then you can probably dramatically increase your price without losing too many customers. If you raise your prices 25% and lose 10% of your customers, you are still way ahead, plus you have more free time for yourself, and more time to concentrate on the remaining good customers who are now paying more.
There are natural price barriers, such as $49 and $99. Generally, if you break a barrier, you can raise the price almost all the way to the next barrier without a problem. If you raise your price from $49 to $79, you may find that $99 works just as well, and you get an extra $20 with no loss of customers.
How Can You Be Sure?
The only way to tell what price will work best is to test. Nobody knows in advance without testing. You’ll probably be surprised to find that a higher price brings in not only more money per sale, but in many cases brings in more sales. That’s right; sometimes you can sell more units at a higher per-unit price than you can sell at the lower price.
Why is that? People aren’t going to value something they think is “too cheap.” They will think something is wrong with it or they will wonder why it is not in demand. They will think it must be inferior in some way.
Price, especially for a product like information, coaching, consulting, and other professional services is totally variable. Clients going to the most expensive professional in town might think they are getting the services only the best professional in town can provide. And, those people paying the bill may be so happy with the service that, for them, it is worth paying the higher price.
A Note on Shipping
If you ship your product, and don’t currently charge for shipping, you may be able to add a small shipping charge without affecting the number of sales at all. One large mailer was selling a book for $25 and tested $25 plus $5 shipping. The number of sales did not go down at all, and they made an extra $5 on every book sold.
To the customer, $25 plus $5 shipping sounded so much more reasonable than $30. This small change brought in an extra $250,000 per year, without any extra costs involved. Would you like an extra $250,000 in your pocket?
Sometimes people will pay more when the item has a very strong guarantee, because it makes the item appear to be of superior value, while lowering the buyer’s risk.
When coming out with a new product, you should always price test. Test at least one price higher than you think customers will pay, and you may be surprised. You may realize that you have been leaving a lot of money “on the table.”
