How you price your product, service or workshop can have a massive impact on your sales. Unfortunately, it can also lead to a massive anxiety attack as well.
In this episode we lay out 8 pricing strategies you should know about.
More importantly, however, we share off the cuff, brutally honest ideas about how to price your offering.
Other topics include:
Whether it's your first time putting something up for sale, or you're an old pro, the tactics in this conversation are going to help you get confident about your pricing. Enjoy!
Most entrepreneurs never think too much about their pricing strategy. They might take a peek at a similar product from a competitor, adjust the price by a couple dollars, and joila – the product is ready for sale.
But in the classic business world, pricing was an art form. Pricing gurus at major companies obsessed over finding the perfect price to maximize profit from a given product or service.
In other words, that Gillette razor is priced the way it is for a reason. Not because it makes the most sense for the consumer, but because it maximizes shareholder value.
So, keep in mind that a pricing conversation is really about how you will get the most value from the product or service you decide to sell. Thankfully, independent business owners don’t have shareholders, so we can also take into account things like doing what’s right for the customer.
While we’re not crazy about business school terms, we wouldn’t be doing our jobs if we skipped over price elasticity of demand in this conversation about pricing.
All you really need to know about price elasticity is this: if all else remains equal, demand for your product or service will decrease with an increase in price.
As an example, imagine this: you can sell 100 units of a $100 dollar product to your current audience. If you increase the price to $105, you are able to sell 95 units. Your costs are $20 per unit. Should you sell at $105 or $100?
The answer: $105. Why? Because you’ll earn $8,075 profit as compared to $8,000 at $100 per unit.
Great. That’s all the theory you need to know. When price increases, demand goes down. There is an optimal pricing level you can reach to make the most money from your thing. Capiche?
Elasticity is great in theory, but it doesn’t tell us anything about where to start with your pricing strategy. Instead, let’s talk about some of the most common methods for pricing:
As you read through the eight pricing strategies, you might have noticed something… These pricing strategies are not mutually exclusive. And, in fact, they are not.
Many of the pricing strategies can be used together to create the best outcome for your business and your customers.
Now that you have an arsenal of pricing options available to you, let’s get into the specifics of how to apply them.
For digital products, pricing strategies range widely. From $.99 books on Amazon to $2,000 courses, digital products truly run the gamut. Your price should be a reflection of your industry, your customers, and the value provided through your product or service.
Pricing strategies to consider: Competitive Pricing, Value-based Pricing, Tiered Pricing, Pay-What-You-Want Pricing
Unlike digital products, there are hard costs (other than time and energy) to producing a physicial good. While services like drop shipping, print-on-demand, and 3D printing are helping drive costs down, the physical product world is still very unique. It’s important to keep in mind unit economics when it comes to pricing physical products: if you lose money selling one product, you’ll lose more money with every successive sale.
Pricing strategies to consider: Cost-Plus Pricing, Competitive Pricing, Luxury Pricing, Value-based Pricing, and Tiered Pricing
Pricing services can be challenging, as so much of the value comes from your personal ability to deliver. Customers like to see things like testimonials, portfolios, and case studies of your work before they’re even willing to consider hiring you. While price is important, make sure you don’t disqualify yourself by keeping necessary information from your customers. Additionally, “productizing” your services can be a great way to help customers understand exactly what you can do for them.
Pricing strategies to consider: Rate-Based Pricing, Project-Based Pricing, Value-Based Pricing, and Tiered Pricing
Like services, workshops and live events are highly dependent on the speakers or workshop leaders to deliver value. The experience of the attendee can vary greatly from session to session. Setting clear expectations up front helps frame the value of the event so that a potential attendee is ready to consider the price you’ve set for the ticket.
Pricing strategies to consider: Competitive Pricing, Value-Based Pricing, Tiered Pricing, and Pay-What-You-Want Pricing
Hopefully this gives you a great overview of the pricing strategies available to you, and the ways you can use them to help price different kinds of products and services.
But if you take one thing away from this podcast episode and article, let it be this: no matter how well you price your product or service, nothing can make up for the importance of having a truly great product or service.
Your customers will tell you whether you have a great product. Make sure you listen.
If you want to learn more about pricing strategies, be sure to check out the show notes below!
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