The fact is, most small business owners approach pricing in completely the wrong way.
And to be honest, I don’t blame them. Pricing is one of those areas where business becomes both an art and a science, and it can take a lot of time to master.
Heck, did you know that there are entire books out there that JUST talk about pricing? That’s it! Entire books that just tell you how to set your prices.
If you’re the knowledge-hungry type, go ahead and look up those books. For the rest of you, I’m guessing you’d prefer a shortcut to smart pricing so you can learn the essentials and get on with growing your business.
And that’s exactly what I’m going to give you today!
I think the best way to approach this is myth vs. fact style, since for many of you the key to smart pricing will mean not just learning good habits but also breaking current bad habits.
In fact, I think you’ll be surprised by a lot of what you learn here…I know this stuff certainly surprised me when I was still learning it.
Myth: The Price That Creates the Most Sales is Correct
It’s easy to see why people get this wrong. After all, more sales means better business, right?
Maybe…but you have to keep in mind the bigger picture.
The problem with this type of thinking is that it leads many business owners to drive their prices down and keep them low.
In the short term, this does lead to more sales, since there are always bargain hunters out there ready to snatch up the “cheaper” option.
And yeah, it is technically possible to cruise along with this kind of business…but you’ll never build significant long-term wealth.
Plus, when the economy gets tough, these kinds of businesses are the first to close their doors.
Fact: The Price that Creates Stable Margins is Correct
Now THIS is strategic thinking, and this is where you start to get real, lasting wealth out of your business.
The correct price in your business will always be the price that results in healthy profit margins, so that you can enjoy the abundance you’ve earned and also keep investing back in the growth of your business.
The funny thing is, there’s actually a huge sliding scale here as far as what the correct price is for each business. It’s not a simple matter of always going low or always going high.
For example, most luxury businesses don’t have very high sales volume, because 99.9% of people can’t afford their prices. However, they survive and thrive by cultivating a small, loyal, extremely wealthy audience and selling them increasingly expensive goods.
On the extreme opposite end, you have companies like Walmart, who drive their prices as low as humanly possible but still turn a profit because they sell to a mind-bogglingly huge market.
In both those cases, the companies involved are ALWAYS investing significant money back into their businesses. Wealth comes from sustained and strategic growth, not just short-term profits.
Shopping at Walmart is cheap. Becoming Walmart is expensive. If you want to drive your prices further and further down, you have to plan on truly massive scale.
Myth: Pricing is a Financial Decision
Again, this problem comes from not seeing the big picture, and it manifests most clearly during sales presentations when newbie business owners try to argue down price objections.
The thing is, if your prospects are looking at your price as a financial decision, then you haven’t really done your job.
Because the truth is, money is the perfect excuse to back out of anything scary in life.
If someone is looking at a potentially life-changing opportunity, such as the chance to get in the best shape of their lives through personal training, they can back out and save face by pulling a cost objection. They can convince themselves that they’re being responsible and avoid the embarrassing truth: that they’re afraid and uncertain about what they want.
On the flip side, you don’t get to hike up your prices just because you want or need more revenue.
If you want to sell high, START by selling high. If you want to increase your prices later, demonstrate greater value to your clients and prospects so they’ll know you deserve higher prices.
Fact: Pricing is a Marketing Decision
When you put a price on something, you send a whole bunch of messages to whoever is paying attention.
The price you put on something, whether you mean to or not, sends all kinds of subconscious messages about what the product is worth, what the business is worth, and even what the client is worth.
In fact, this is why it’s possible to LOSE sales by setting your prices too low. Your prospects might look at your cheap prices and think, “I’m worth more than that! I’m going to go find the premium version of this.”
Again, the point of pricing is to create stable profit margins, not just short-term sales.
You want to research your market, choose the highest price they will respond to, and work on building a relationship with your client base so that they’ll want to continuously do business with you and recommend you to their friends.
And what do we call it when you’re building an audience and warming them for easy sales? That’s right, MARKETING!
Myth: It’s Okay to Cave On Random Discounts if it Gets More Clients
THIS IS THE DEADLIEST MISTAKE I SEE SMALL BUSINESS OWNERS MAKE!
They get clients and prospects who come to them and say, “Hey, I really like your business, and I want to sign up/keep working with you, but I don’t think I can afford your current prices. Can I get a discount?”
And then the owner CAVES! They give that person a discount!
Now some of you may say, “What’s the big deal? They got a new client and the client got a discount. Isn’t that win-win?”
No, it isn’t.
The kinds of clients who nickel and dime you for lower prices don’t make for good long-term clients. Paradoxically, they are the people who complain mostly loudly about minor issues, and they try to suck up the most of your time by looking for special treatment.
Worse, they create the perception in your community that you’re a pushover and you don’t really know what your business is worth. In the long run, they make it tougher for you to sell people on your real prices because everyone goes in thinking they’ll get a discount!
Fact: All Pricing Decisions, Including Discounts, should be Part of a Strategy
Some people may argue here that giving out random discounts to people who beg is no different from offering LBOs or from giving out special discounts to influencers.
It’s completely different. It all comes down to managing expectations and strategy.
LBOs have a very specific purpose: they are designed to give prospects a taste of your business and make them feel like they are a proper client already, so it will be a no-brainer when you offer them the chance to continue.
Plus, when you offer someone a discount upfront with the opportunity to continue at full price later, it projects confidence and generosity.
When you sell your full price first, THEN discount it later, it projects desperation.
As you might imagine, confidence and generosity are much more attractive and bring in more clients.
And of course, you can always give out discounts as a simple act of generosity…but make sure the person on the other end really deserves it, and don’t make a habit it out of it.
Finally, it makes plenty of sense to offer discounts to people who can add extra value to your business, such as community influencers or business affiliates. That’s just good strategy.
Myth: Price Erosion is an Outside Force that You Can’t Control
Completely wrong. In fact, I think the only time when price erosion can really hurt you is when you allow it to infect your business.
Sure, you can sit there and make excuses. You blame it on other businesses in your area lowering their prices, or on the economy, or on clients who don’t take your products/services seriously…
But at the end of the day, YOU are the only person who controls your prices, and when you set them too low, or don’t build enough value to justify them, you have nobody to blame but yourself.
Fact: When You Dominate Your Market, Your Prices Become Invincible
The truth is, the only way to get the high prices you want and need to run a thriving business is to become the go-to expert in your community.
In other words, DOMINATE YOUR MARKET!
Offer the best products or services, CONSTANTLY over-deliver on client expectations, and create a community of clients that you treat like the most special people on Earth.
The goal is not to make the market think your prices are “fair.” The goal is to make the market embarrassed for not paying you more, since you’re already giving them such incredible value.
Because when you really are the best at what you do in your community, your client base isn’t going to consider you an optional item in their budget. In the toughest economic times, they’re going to look over their budget and find ways to trim everything BUT you.
Committed to your success,