How Much Are You Worth
A conversation I have with nearly every one of my clients, as well as with random people on planes, in restaurants, and other places, is about pricing strategy.
This is what I hear most often: “I am going to reduce my price so more people will buy.” “If I reduce my price, demand will increase.” “When I price myself below my competitors, more people will by my product or service.”
Sounds logical right? While this idea illustrates basic supply and demand, it doesn’t consider the whole picture. It is true only if you assume all the products are equal. Is your product or service exactly the same as all your competitors? What are your customers actually buying?
The supply and demand curve from Economics 101 is a theory based on commodities markets. By definition, a commodity is something that is identical to all the other products like it. Gold, for instance. Gold (for the engineers out there, assume pure gold) is gold is gold. No matter where or whom you buy it from, its atomic make-up and properties are exactly the same. This is where supply and demand shines. But as soon as you turn that gold into, say, jewelry, there is more than price to consider.
Most of you reading this don’t sell a true commodity product. I am betting that there are positive ways to differentiate your product or service from the competition. In other words, don’t jump to price first when deciding how to increase revenues. Doing so often leads to greater struggle for even less income.
Mike Meadows, a former boss of mine in San Antonio, Texas, taught me this 5 P’s approach to pricing.
Product. Make sure the product or service you are selling is what your customers need.
Promotion. Create marketing geared to your target audience and ensure that your message is reaching the right people.
People. Hire and train the right personnel to connect with your target customers.
Presentation. Position your product or service correctly to illicit a buying action from your prospective customers. (No one is sold; everyone buys.)
Price. After all else is examined, price your product or service so that prospective customers feel that they are getting equal or better value for their investment.
How often have you thought through all five of these before making a pricing decision? Through least three? I would bet many of you jump straight to No. 5. I am here to tell you– and my clients will concur– you are costing yourself money. In fact, one of my clients this year made my entire annual contract amount up on one job due to this discussion. How is that for return on investment!
So back to the original question… How much are you worth? Is the work you do (or the product you produce) and the value that you bring accurately depicted in what you are charging? This is a very difficult question for most people to answer about themselves, but so important to a business. Market metrics are helpful for competitive pricing, but I want to get my clients to a level of complete confidence in this very simple and easy statement:
“At the price I have quoted you, you will receive every penny and more in value.”
If you can’t say that with a straight face, go ahead and reduce your price. Otherwise, you may need to go up.
Generally, this conversation continues with many “Yeah, buts” and all the reasons this can’t be done. Here is what you will quickly learn about me though. I eat “Yeah, buts” for breakfast. Most of the time these objections are just self-limiting beliefs that are keeping you on the hamster wheel. There is a fantastic world out there. Take a chance and try something different. The wheel will still be there if you need it, but I think you will be surprised to find that you don’t.