Whereas if you crossed the road and went to Canary Wharf you have got one of the wealthiest areas in the country and they will pay quadruple to have good service, save time and just get the same product.
Different markets not only will pay different prices they also want to. This is tied to the belief that “you get what you pay for”
Rule 3: Do market testing. When I first started my company I got an early contract with the Times News Paper telephone sales team to run some training sessions. We had a great chat on the phone and they asked me to send them a proposal including a price!
I had this moment of panic where I didn’t know what to charge. I said I would drop them an email with all the details and I got off the phone quickly. The next step for me was a panic call to my friend Billie who very calmly told me to ring some competitors and find out what they charge.
So I got on the phone and called 4 or 5 companies and asked them for a quote for training for my business to get an idea. The prices varied dramatically from £250 for a day all the way up to £1500 for a day.
I didn’t want to be the cheapest (shows you aren’t confident or good) and I didn’t want to be the most expensive (because I wasn’t confident and I didn’t know if I was any good at this stage!)
So I set my price at £500 for the days training.
The stroke of genius was that Billie told me to put in the proposal an extra item that they could buy so I added in a line that said for only £250 extra they could get a days coaching for their team.
So I sent off my price and waited for the response! To my delight they bought the training day and the coaching day! Turned out I was significantly cheaper than who they used in the price. But I was happy with what I had got to do the work!
Rule 4: Price is related to confidence, your confidence in your own ability, your confidence in getting the deal and your confidence in the moment. That is why Simon and I are always saying to the participants on our courses spend as much time building your business as you do building your confidence.
I remember the first time I landed a piece of business working for Microsoft. I was sat at a lunch time meeting and put next to someone I didn’t know. He introduced himself as the Head of Readiness (learning and development) for Microsoft EMEA. At the time I was selling training courses and I nearly had a fit at this point as he was exactly the man I needed to meet!
We had a great chat at lunch and by the end of the lunch he asked me the dread question.
“Alan your courses sound great but how much do you charge?”
I could feel my stomach do a flip, I could feel my face go bright red, I could feel my entire body fighting the urge to beg and say
“I’ll work for free just give me some work!”
It was all about confidence and mustering the energy to give a confident answer at this point.
I built my confidence and put on my most confident voice and said £950.
I didn’t want to be over £1000 as I REALLY REALLY wanted the business!
It felt like an eternity
Longer than eternity.
I then left the building as quickly as possible and I remember driving back down the A329M on my way home screaming with delight in my car!
I had landed Microsoft!
There are something I would love you to take away from this short story.
Rule 5: Think value, not cost.
Cost pricing is where you workout how much time, materials and other costs it takes to deliver your product or service and then add on a profit margin.
This is the typical way to price things.
There is another way. Value based pricing which is where you think about the value to the customer and charge them based on what they will get out of it.
For example, if I run a sales course for a company we could think about how long it takes me to run the course. i.e. it is a 1 day course and I charge for my time plus the expenses of getting there and back.
Or we could look at how much extra sales the company gets from the course. i.e. I will run the course and let’s see what impact it has on your bottom line and if your sales go through the roof then pay me a percentage. If sales don’t go up you might not get anything but if you could increase sales by £10 million for the business they would happily pay you a small fortune!
This is all about thinking about the value to the client rather than the cost to you.
How much time will you save them?
How much money will you save them?
How much stress will you save them?
How much will you build their business?
Work to directly tie your work to a £££ or $$$ amount in value for the client and charge based on the value to them rather than the cost!
Rule 6: A/B testing prices.
You never know what the best price is to sell out until you have tested, seen customer reactions and done the maths afterwards to see which one works! So test!
Ways to Test:
1. Setup 2 identical product or service or product pages on your website (for website help check out Step 10 of the guide) where the only difference is the price. A/B testing online will send half of your web traffic to one page and half to a second page where each half of the audience will see a different price. You can then measure which one converts to sales better and you will have empirically proved which price is better with data.
You might sell less at a higher price but be happy with that because it is less work for more money or you might sell way more at a lower price and be happy with volume. The key here is that you don’t know what is going to happen unless you test! You may just sell more at the higher price because people believe that “you get what you pay for”
2. You might also test at a physical market. Do half the day at a lower price and half the day at a higher price and see which one sells more. This is not as clean a test as the A/B testing online but you will get valuable client feedback.
3. Try doubling your prices. If you have already started then just try doubling your prices and see what happens. Experiment and see how the market reacts. You might lose a few existing customers but you might win some new ones too……….
4. Surveys are to be avoided. In my opinion surveys are to be avoided because people won’t give you an honest answer until you actually ask them to make a purchase. Until you actually ask someone to take their wallet or purse out of their bag or pocket and give you money they will be nice to you. As soon as you ask for money you will get a true response. Always test live with real money at stake.
Rule 7: Ask the other side to go first.
Sometimes you don’t know what the other side wants to spend and you need to ask them to go first so you have a ball park to play in.
In the Microsoft example above if I had found out they were paying other providers £10,000 a course do you think it would have affected my price??
How I do this in pricing situations is to ask:
“Do you have a ballpark budget for this purchase?”
“Have you purchased anything similar before?”
“I normally charge X for my services, tell me what your budget is and let’s work out what we can do”
Look to get the other person to go first and give you a hint of how much they are willing to spend. If you go first like I did in the Microsoft example you might be leaving money on the table!
Rule 8: Why is the price the price? Differentiation
If your price is high then you need to highlight why yours costs more. What is the differentiator between what you do and what other people do that means that you can offer more?
List out what your product or service includes that other people don’t. list out why yours is different from the competition. List out where your product or service difference from the others that are out there.
If you are going to charge more for your product then you need to be able to clearly articulate why you are different and what they are getting for their money.
The added value of doing this is that if you get it right these customers will then become advocates of your product explaining to other people they meet why they spent so much and how it is different!
You have got to differentiate from everything else that is out there and why what you do it better, different, faster, cheaper in the long run…………….
How can you break down your pricing?
By the number of people it helps?
By the day? By the weight?
Break down the price to make it feel cheaper and highlight the real value!