Pricing Strategy

By May 25, 2009blog

Creating and changing pricing strategies is the hardest thing I’ve done and helped others to do with their businesses. It’s complicated. It’s intimidating. And its REALLY IMPORTANT in order to have a business that GROWS PROFITABLY.

So what do most of us do?
1. Look at competitors’ prices
2. Charge the same, less, or free
3. Figure you can change pricing later once you get things off the ground.

And then we CHANGE pricing this way:
1. Look at competitors’ prices
2. Add 5-20% to pre-existing prices
3. Figure we can change pricing later once we get a few more customers

Pricing is WAY too important to the success and sustainability of our businesses to take such a shortcut approach! DON’T do it.

The BEST thing we ever did at RegOnline was ASK our CORE prospects and customers what they thought, valued, and felt was FAIR for pricing. We found that people thought we were priced way below the value we provided (as much as half-priced). I’ve recently helped two other companies go through the same process and make surprisingly profitable discoveries.

Asking customers and prospects about pricing sounds something like this:
1. What value do you/could you get out of this service? Why? Can you go into more detail? Why is that? What is the implication of that to you or your business? How else does it help? What does that mean? How else does it help increase revenue or profits, decrease expenses, or make your life easier? (keep asking until there’s no more left to be said)

2. How much is all that worth to you?

3. What PRICE is TOO MUCH for you to pay for this value? Meaning you would say “no thanks” to all that value in #2, stick with status quo, or find an alternative. (ask this to get a more reasonable answer to the next question)

4. At what price do you feel it would be fair to pay? Why?

5. What pricing structure would work the best for you or your business (one-time, per transaction, monthly, annual, etc.)? Why? What do you like and not like about the way others charge?

You’ll be amazed at how honestly and happily customers and prospects will answer these questions for you. Why? Because it shows that you CARE about providing REAL VALUE to them and charging a REASONABLE price for it.

If you have a new business or product, make sure you can REALLY make a sustainable profit at what your prospects say is a reasonable price for your services. Better to find out up-front what is reasonable to them BEFORE building a business around an unprofitable model.

Changing an existing pricing structure looks very similar to the process above. But then when you change prices, give existing customers only half the increase from their existing prices to show them that you love them.

I believe REAL businesses generate REAL cash flow. And 99% of successful cash-generating businesses that I’ve been involved with established self-sustaining profit models early on (by their first half million in revenue). So stop guessing at pricing, and starting asking your prospects and customers the easier-than-you-think pricing questions.

P.S. – Thank you to those of you who have recently encouraged me to write more. It’s PRICELESS to get the feedback/reminder from you that this stuff helps. Please keep the feedback coming and feel free to email me with topics you’d like to hear more about – billflagg at gmail.

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