In the journey to reach the elusive milestone of your first 6 figures in revenue, small businesses are confronted with a surprising struggle: pricing. It can be unexpectedly emotional coming up with a number that represents what the client will receive, what you are comfortable charging, and what you feel the client will think is fair. Before you get to the job of delivering the value of what clients have paid for you have to get through the stress of feeling like you have to defend your pricing leading to underpricing and more. Let’s discuss four problems with pricing and how to solve them.
Fear. The lower the price, the harder you have to work to meet big revenue goals. However, most entrepreneurs underprice their service by doing what’s called “confidence pricing” or pricing their service low to compensate for their discomfort with higher pricing. What is the discomfort? It could be imposter syndrome associated with delivering what is being paid for, comparison to the perceived expertise of the competition, or money blocks where an entrepreneur may tell themselves their audience will not pay over a certain amount for the service.
Solution: Conduct thorough market research to understand industry standards and competitors’ pricing so that you understand the average pricing of the service. Be sure that you can produce the service clients hire you to perform. If you are not able to charge at least what is within the range of normal pricing for your service, then seek therapeutic tools to overcome feelings of inadequacy around the delivery of the promise and the worthiness of your desired price point.
Showing Value. Worrying about what you think people can and cannot afford is a mistake. You do not know if they have the money or not. You do not know if they’ll pay the higher or not. Every day people purchase high-ticket items out of their budget. Why? Because people find the money to pay for what they value.
Solution: Any price can be justified if you show the value in a way that resonates with the client. To do so, you have to present a clear and compelling offer where the transformation that the client is looking to achieve is outlined. More time should be spent describing and reinforcing the promise of the transformation instead of the steps that will get them there.
Profit Margin. Picking pricing out of the air without consideration of direct costs (expenses like labor and materials to provide the service) or indirect costs (expenses like administrative fees and overhead to run your business) can have a small business in the hole rather than turning a profit.
Solution: Calculate every cost to your business to determine the minimum profitable price. Review these costs regularly to be sure your business stays within your chosen profit margin.
Offer Ladder. Simply put, one size usually does NOT fit all. Providing an all-encompassing service leaves you with only the opportunity to charge a high price point. Potential clients not needing the fully comprehensive service will not justify paying the full price for only needing a portion of the service.
Solution: Having a service with multiple transformations, phases, or milestones is harder to price. An offer ladder represents services packaged by phase of transformation: either from the first stage to the last stage, simple win to big win, etc… It is best to break the service up into an offer ladder to allow for low, medium, and high price points.
If you need support with creating pricing that makes sense for reaching your first 6 figures in revenue, let’s talk. It’s FREE. ShaCannon.info/talk