How To Set More Profitable Prices
How high is too high?
What’s the most you can charge before a prospect won’t buy? Those are the questions on a business owner’s mind. But the issue here is not why you should charge higher prices, but why your limited beliefs about money are holding you back.
What I’m going to give you are strategies for setting more profitable prices so that tomorrow when you go back to your business, you can increase your prices.
Set Prices Based On Value
Start by setting prices based on how much value you deliver. By value I mean what your prospects value, not what you value because what’s important to you may mean nothing to your prospects.
What amount of pain do your prospects have? The greater the pain, the more you could charge. Another way to look at your offer is, is what you’re selling a nice to have or a must have?
Here’s an extreme example. If I have a migraine, I go to see the doctor and ask for some pills. How much do you think I’m willing to pay for the bottle of pills? Maybe ten dollars. Or twenty. I’d be willing to pay even a hundred if the pills could take my killer migraine away.
But say I go to see my doctor about my cancer. How much would I pay for the treatment? Likely everything I have. Now if the doctor asks for ten thousand dollars, do you think he’ll give a discount? Probably not, because I have so much pain.
It’s what they call return on investment or ROI. For example, you are providing a digital marketing service, and you charge $2000 a month or $24,000 a year. You help your clients to make a $250,000 a year, or 10 times the return.
That 10x return is the ROI. You’re selling money at a discount. The greater the result, the more you can charge.
Use Contrast Pricing
Contrast pricing is a strategy that makes your prices more appealing to the marketplace. For example, people may find your pre-recorded course expensive at $995.
But say you tell them about why you set that price. Originally, you had a workshop for only 20 entrepreneurs who paid $5000 each. But after the exclusive workshop, you went to the marketplace to say that the recordings, CDs and DVDs are now available online for just $995.
Suddenly, that price seems like a great deal considering the original price was 5x more! And if you buy the course, you can watch it in the comfort of your own home and at your own convenience. The contrast makes the new price a great deal.
Contrast pricing is what makes your final price ($995) seem like a fair price to pay.
Define Payment Terms
You want to be the one setting payment terms. I’ve said this before, but I’ll stress it again: If you’re charging market rates, you’re basically letting your competitors set your rates for you.
There’s no reason to set your rates based on what your competitors are charging. If you’re asking for a lot of money, what you can give them are payment terms.
So if you’re offering a digital marketing service, instead of telling the clients, “I charge $24,000,” and scare them off, say, “It’s $2,000 a month.” The monthly rate is more comfortable.
Guarantees can also affect pricing, whether it’s “no questions asked” or conditional guarantee or no guarantee. Each one affects how much you could charge.
Your payment terms could also be results-based. The client pays you an amount upfront, and the rest after they get certain results. The more performance-based the work is, the more you could charge.
People afford what they want to afford. The big lesson here is to stop discounting and start adding more value to your offer. There are some cases where you can give a discount, however.
For example, Jeremy recently got a very large order for his filming business from an account that in the future could be worth a lot of money. But instead of making the usual 35 percent margin from this first batch of orders, he will only make 18 percent. It’s a large order, so he’s charging less to get them in on the first order, and then he will sell backend products to this account.
So, if you do discount, do it strategically, not just because your competitors lowered their prices. You want to be competitive. The main lesson here is to set your prices based on your value by solving the prospect’s pain, and defining your payment terms.
Dan Lok: Welcome to another episode of Dan Lok show. Today we are in actually New York City, and I’m with John Henry. Now John not only is an entrepreneur, but also a real estate investor as well as owns a venture capital company.
John Henry: That’s right.
Dan Lok: Now before we even talk about John’s story, I want to talk a little bit about this space.
John Henry: Let’s talk about it.
Dan Lok: Let’s talk about this space. Like what makes this space, co-working space, so special?
John Henry: First things first, thank you for having me on.
Dan Lok: Welcome man, welcome.
John Henry: Appreciate you. And look, what makes this space special is this is the proof right here. Like you’re on a one day trip, you came, you interviewed with Faiza, this content, that content lined up. We connected and it’s central in the city, a lotta energy here, there’s six floors.
Dan Lok: You can feel the entrepreneurial spirit.
John Henry: That’s right.
Dan Lok: The minute you walk in you can feel the hustling.