Any business owner knows how important it is to get their pricing right.
If you go too high you could price yourself out of the market. Go too low and you’re going to cut too deeply into your profits. Forcing you to work harder and longer for less money, and hindering your growth.
So it’s no surprise that pricing is one of the issues that often comes up among our Mastermind Members. On average, we’ve noticed that many businesses tend to underprice themselves.
There are usually two reasons why this happens.
Some businesses just aren’t sure they’ll be able to compete at a higher price point. They’re worried it’ll be harder to close sales, and they’ll end up losing money.
And some businesses plucked a price out of thin air and don’t realize they are being underpaid.
The only time we recommend competing on price is when it’s part of a bigger upsell strategy. We go over this in-depth in the Business Growth System Report.
But it is dangerous to under-price your main revenue source (especially if it’s your only source). That’s why it so important to know how to charge a higher price without hurting your ability to close sales.
Fortunately, there’s a science to pulling this off.
There’s a psychological principle which decides if your prospects think your offer is worth the cost.
We’ll explain that principle and give you three ways you can act on it right away.
Having the confidence to raise your prices brings some massive benefits.
Most importantly, it’s the easiest way to raise your revenue without making any other changes.
Plus, it’ll give you the gift of flexibility. You can reinvest the extra profit and grow your business further. Or, you can take the opportunity to work fewer hours while making the same amount of income.
Either way, the choice will be up to you.
People Are Terrible At Estimating Value
There are two things that any business owner has to remember when it comes to price.
The first is that most people are terrible at estimating value.
Think of the show “The Price is Right”. If people were good at estimating prices, every contestant would be a winner.
But in reality, it’s not uncommon for them to be way off.
Then there’s the second principle. People place more weight and importance on what they lose than on what they gain.
In other words, losing $600 has a much bigger emotional impact than gaining $600.
These principles lead to two practical conclusions.
- It’s the entrepreneur’s job to educate his prospects on the value of his products or services.
- It is good practice that the perceived value of the product or service is at least twice as much as the cost.
Of course, there are obvious challenges. Not all value can easily be quantified. Plus, prospects are naturally going to underestimate the value of your offer. They won’t inherently understand how to put a “price” on what they’re gaining. So you have to educate them on why the value is there.
This sort of education comes down to how you’re presenting your product or service. People make decisions based on the information that they’re provided.
Imagine you’re selling a mentorship program that you’ve been running once a year for three years. Consider these two statements about the program.
- 80% of the people in last year’s program added $1,000 to their yearly income.
- On average, ¾ of every mentorship class doubled their income within two years.
Both of those statements could be true. But the second one is obviously much more attractive than the first.
That was a simple example, but it does illustrate an important point. You have to present the information in a way that best helps your prospects judge the value of your offer.
There are three specific techniques that can help you do that.
We’ve explained all three below. You should consider how you can include them into your campaigns
As we mentioned people are usually very bad at estimating cost and value.
So, it’s very helpful if you can quantify the value for them. It gives them a tangible number to look at and compare to the cost of your product or service.
Quantifying the cost of your value can come in one of two forms.
- Explaining how much money they can make or;
- Explaining how much money they can save
The amount your prospects could make or save should be spelled out to no matter how obvious it seems.
There are a few ways that you can present this information to your customers.
- Through a sales call. For instance, imagine you’re selling a product that lasts far longer than the competition. On the call have the client explain how often they must replace the product they’re currently using. Calculate how much money they’re spending over time. Then explain how by using your product, they’ll save money because they won’t have to buy replacements.
- Through a proposal. For instance, if you’re service is to bring in more customers, make an estimate of how many you’ll be able to bring in. Use the average worth of a customer to calculate how much more revenue you may bring them within a year.
- Through charts and graphs. A simple chart that lets them visualize their savings or gains can help solidify the value.
If you’re able to implement this, it’s one of the best ways to educate your prospect on the value you can bring them.
But it’s true that this approach doesn’t make sense for all businesses.
If that is the case, you can use this next technique.
Many businesses provide an intangible value, and for them, Dollarization doesn’t make sense.
A weight loss service is a perfect example. You could perhaps make the argument that people might save money because they’d be eating less food. But that comes off as silly more than anything else, and it’s not at all tied to what the market actually wants.
In this situation, we use the Implication technique.
With this tactic, we center the value on the benefits and emotional benefits that come from the outcome.
For instance, take these two benefits that a weight loss program might provide:
- In twelve weeks you’ll slim down enough that you’ll have the confidence to rock that bikini on the beach. Everyone will say how great you look and be amazed at your transformation.
- You’ll be in the best shape of your life. You’ll feel like a real athlete as you start running faster and farther, getting stronger, and getting rid of all your aches and pains.
Essentially, you’re helping people envision how much better their lives will be after they buy your product or service. If they truly believe that you can help them reach their dream scenario, the price will be far less of an issue.
There are a few things to keep in mind when you use this technique.
Start by thinking about the results that your prospect wants to achieve.
- Which of their behaviors will they change?
- How will they change the way they interact with others?
- What physical changes will they be able to see, hear, taste, or touch?
- What emotions will they feel once they achieve those results?
Use the answers to these questions to paint a picture of how their life will be different. Remember to give them tangible characteristics to envision: the things they will see and hear.
And of course, any business that uses Dollarization can also include Implication. Between the two techniques, you’ll be able to explain the value of your offer no matter what your business is.
But there’s one more technique that will multiply your effectiveness.
Most people have a “baseline price” in their head for everyday items. A loaf of bread is between $2 to $4, filling their tank will cost them between $40 to $60, and so on.
They’ll judge if something is priced high or low by comparing it to their baseline price.
But you may deal with prospects that don’t have a baseline price for the product or service you sell. Either because the product is too unique, or because the prospect rarely purchases it.
But that actually presents a great opportunity for you.
It gives you the chance to create the baseline for your customers. You can use it to make them feel like they’re getting a great deal – even if your price is higher than your competitors.
You do this by presenting your prospects with a cost that is high, but still in the ballpark of what you want to charge.
Then you give them a discount for a legitimate reason. They’ll be focused on the amount of money they saved from the discount. Rather than independently considering if the new price is high or low.
Here are the steps to implement it.
First, figure out what regular price you want to charge your customers. That will be your “discount” price.
Then increase that price by 1.5 times. That will be your upfront price or your “anchor”.
The next step is to think up a legitimate reason to offer a discount in your marketing or sales calls. Here are some examples:
- You’re giving them a discount to either buy on the call or by a certain date
- It’s a limited time discount as you’re trying to clear your inventory
- There’s a special sale going on for a holiday
It’s important that the reason is legitimate. The market has become aware of fake limited time offers and they will only hurt your credibility in the end.
So, Anchoring can be done either continually or at strategic times. Depending on the reason for the discount.
Finally, include the anchor price and discount in your marketing and sales messages.
By using these techniques you’ll find it much easier to overcome or even skip any price objections. You can start increasing your prices, and experiment how far you can raise your rates. You’ll often find that you can go further than you expected.
However, this only works if you have the value to back it up. No technique in the world can justify charging $100 for a product that only provides $10 of value.
Once you’re settled on your pricing, the next step is to start scaling.
One more thing – providing and communicating value is only one aspect of great marketing. There are four fundamental pillars of marketing that we teach to all our Mastermind members.
If you’re interested in learning about the other 3, we’d like to invite you to apply for membership to The Mastermind.
It’s a complete business growth system. For over three years we’ve helped our members add $300,000 to $1,000,000 to their revenue within 12 months. Just by using concepts and strategies like the ones I’ve shared with you today.