Too Low, Too High? 12 Steps to Set the Right Price for your Product or Service
I've always believed that you must price your particular product or service at a level that provides value for others at a price they're willing to pay.
There are two parts of a price tag: one is the actual sale price of the item. The other is the value that the purchaser finds in buying that item.
The actual sales price is just a number. However, the item is essentially priceless --- it could be worth $5 or $5000, depending on how valuable that item is to its owner. Any visit to Christie's or Sotheby's will convince you of the varying price that someone is willing to pay for a particular item.
Your product or service might be worth $7.99, $79, or $790 to your particular client -- you must price it at a level that you find profitable and that the customer finds reasonable for the value that item delivers.
In the reality of pricing your products and services, you'll want to find the "sweet spot" that fits your company's ability to make a targeted profit as well as your company's ability to fulfill the job, deliver the product, or get the goods out the door.
What we've found in our own work and in consulting with other women entrepreneurs is that many of us take time finding the right price for an item. Here are some assessments for you to consider when you create your menu of available options.
1) How about making it free?
The price of delivering a turn-key product, especially one that's digitally delivered, is essentially going to reach $0. Many people download documents online. Read-only and PDF formats work for many customers who simply need an electronic version of software, or an e-book, or an online product download (like a podcast or a Powerpoint presentation). We're seeing more and more ways that people file share. How is your item going to fit into a marketplace where people expect knowledge for free?
2) Can you make your product free as part of an exchange?
Do you have something that you can make available to your customer, but as a fair trade: for example, if you offer an e-download in exchange for someone signing up to your e-mail list.
Is it possible based on your numbers to offer a "buy three, get one for free" or some other such discount?
Can you give away a freebie? Is there a way for you to engage with your client more by sharing something of value with them now?
3) Is it priced at a rate that covers your expenses and allows you to make a profit?
By far, this is the most difficult item for people in time-based or service-based industries. If your work is somewhat fluid and does not have clearly constrained guidelines, deliverables, or outputs, you run the very real risk of underbidding and over-working on a particular project. In this case, scope out the actual cost of doing a project and bid realistically.
4) Can you sell more to your existing customers?
It is easier and more effective for you to provide add-ons to your existing accounts than it is to find a new customer or client. Consider ways to upgrade service, provide premium services, or increase the value proposition you offer your clients.
5) In service industries, figure out what it will cost, then add a little bit more to your quoted estimate.
I learned this from Suze Orman. In general, as women in business, we tend to undercalculate the actual cost of a product. I see this in my own web development business: while we know how long a particular site will take time-wise, there is always additional customization, or a way to make a particular page render better, or some additional SEO or analytics work, or a new form, or some more complex functionality that is needed.
When estimating the time it takes to do a project, plot out what you think it will cost, and then either add a small bit of padding to cover the inevitable delays, or lock down the scope of activities or your deliverables list in very granular detail.
6) Can you offer a package deal?
Can you bundle some of your products together into a package that provides even more value? Do you find yourself selling the same items together, over and over again? Find a way to package items into one attractive, all-inclusive package. Think airline, flight, and hotel.
7) What will make your customer happy?
In general, as business owners, we exist to provide solutions to our customers. Alternatively, we provide entertainment, something useful, or something necessary. What is the pressure point your customer needs to fulfill? Can you use the information you collect during your preliminary sales discussions to come up with a new product that you can offer through your company?
For example, for my web design and development clients, not everyone can afford a full-fledged website, but many people want the knowledge and procedural-type checklists we have, so now we provide books (print and e-version) to help with the planning process.
8) Learn from the music industry.
Seth Godin is an excellent thought leader about new ways for companies to engage with their customers. For example, the music industry, in the face of massive digital file-sharing and outright theft of music, has re-imagined their outreach, with some artists (Madonna, The Rolling Stones) taking more control of their share of profits from live concerts, other artists (Radiohead) offering pay-as-you-like versions of their music, and most performers setting up Fan clubs, members-only websites, ticket promotions through Facebook and Twitter, and other benefits only available to fans.
9) Be a producer.
If you don't currently create for your company, find good staff or teammates who will create for your company. It does you no good to moan, complain, criticize, get angry, or worse-- get frightened!-- about your company's future. There are literally millions of opportunities for us in the world. We simply need to find the item that works for us in our business, and then do that one thing well: then find ways to replicate that, provide a variation, or expand the available options on that one thing.
Will you make a kids version?
Will you do it in green or red?
Will you bundle it for a particular industry?
Will you offer a group discount?
10) Learn from the newspaper industry.
Newspaper ad revenue has declined (almost 40% from 2005 to 2009) -- the world is changing. Many people now get their news online. What is the traditional newspaper going to do to increase its revenue? There are many ways that these publishing companies can find new customers and provide new revenue streams. These include partnerships, social networking outreach, subscriptions, annual events, video and audio media creation, and conferences.
11) Connect and empower others.
Can you offer affiliate marketing through offering a commission to others who sell your product? Will you offer a giveaway to increase your available pool of bloggers, Tweeters, and Facebook fans who will rave about your company? What is your bonus item for long-term customers? What community outreach and support will your company offer locally or for a cause? Increase your ability to serve your best customers and fans -- they will help you find even more customers and fans.
12) Think 21st century.
The days of marketing your company solely through television, radio, and/or newspaper ads are on the wane. The companies that make it to 2012 will develop and execute a plan for social media, social networking, embedded applications, and referral marketing.
What is the price for your product or service? By focusing on choosing the right price, your business will succeed and thrive, your customers will find great value in doing business with you, and you'll be rewarded every time a new client buys from you.