My wife and her boss once had a discussion about a bid to clean and repair his gutters. He had shown her three bids and then asked her which she would choose. Not knowing anything else about the bids other than the price, she said she would go with the lowest one. She assumed that the bids were all for the exact same level of service. Her boss, however, said he was leaning more toward the highest bid because he had more confidence that company would do a good job. The difference was only in perception. He assumed a higher price included a higher quality service.
If you are not pricing yourself correctly, you are not communicating to your clients the message that you are better than the competition.
Even better—you are more likely to give better service if you feel you are being paid well for it. On the other-hand, if you are constantly dickering on price, you are more likely to cut corners so you can get to the next low-paying job, where you will be tempted to cut more corners.
How to Determine Your Price
Even if you are in a retail store, you usually have the option of setting your own price somewhere above Manufactured Suggested Retail Price, often referred to as the MSRP (unless you have a contractual agreement otherwise).
If you are already in business, take whatever you are charging and increase it by 10 percent tomorrow for any new clients. Measure the reaction you get from your customers. You’ll be surprised by how little it effects them. What’s more, many businesses can increase their price by 10 percent, lose 25 percent of their customers, and still bring home close to the same amount. Variable costs come down (usually the biggest expense for most businesses) and the stress level decreases. In fact, one client I worked with increased his price by 20% and improved his Net Revenue by 146%.
If you have not started your business yet, ask your market what it would be willing to pay. Do not ask your friends or family—they won’t give you an honest answer and are probably not your market anyway. Once you know what your market is willing to pay, increase it by 20 percent. Your customers are interested in getting a deal, but you are interested in making a profit. In addition, it’s easier to negotiate a new, lower price or provide discounts than it is to raise prices.
Remember: Your price reflects your value and is more than an exchange of goods for cash. It communicates to your market that you are the better choice.
Money is more than a piece of paper or a set of numbers on a check. It’s a thank you note. The more grateful customers are for what you did for them, the bigger the message on the note.
A word of caution: You cannot charge a premium price if your product/service is just like the competition’s.
David Bryant Mitchell is a professional keynote speaker and the author of the book Building Your Booming Business. He is also an executive business coach and consultant that works with business owners and managers to create momentum in their business with strategies and tactics that they can implement today. These strategies are based on the five foundations of business: Marketing, Leadership, Operations, Finance and Systems.