Is your pricing strategy working?
Who knows why something finally clicks? Timing, experience, messaging – all combine for the “aha” moment. The moment you “get it” is a beautiful experience. Pricing strategy was one of those illuminating experiences.
How does your worth affect your pricing? The pricing strategy for most service professionals is based upon industry standard. Whether you’re a landscaper, personal trainer or marketer this applies to you.
Competitive pricing trades dollars for hours
You’ve been instructed to figure out the range and then develop your pricing structure within those margins. The traditional price strategy has you research the high and low of your competitors. Then you choose your prices. This is a good starting place when you solely base your pricing on dollars for hours. The fault with competitive pricing is that it creates a glass ceiling.
Here’s why pricing methods which rely on a dollar per hour rate limit your income potential:
- Time. The number of hours you’re capable of working are finite
- Experience. More experienced professionals arrive at a solution faster than newbies. When charging by the hour, you’re actually paid less than a newbie who may be slower and less experienced than you.
- Devalues. This devalues the long lasting impact which your services offer.
- Confidence. Entrepreneurs with lower self worth keep their prices low.
- Illusion. Your beliefs influence pricing strategies.
The traditional pricing strategy doesn’t reflect your value
During a strategic planning session with my first business coach, I learned about these 4 types of value.
- Ease. Life is complicated enough. My clients were seeking the solution to their problem, AND they wanted it to be easy.
- Fast. Our society craves immediacy. Expertise is developed from years of experience and wisdom. You possess the skills to resolve an issue faster, and with fewer mistakes, than a newbie.
- Saves money. Consider the time, money and effort you’re client has already spent trying to resolve this issue on their own.
- Makes money. This has two aspects. First, does your service help your client to generate income? And hiring you frees them up to focus on other activities.
These are four ways your service adds value. Does offering all four have more value than one? Not necessarily.
Hierarchy for service delivery My understanding of value based pricing deepened when another mentor outlined 4 primary delivery models.
- Theory. This is primarily academia. Teachers in academia emphasize theory.
- Tactical. Most entrepreneurs fall into this category where they teach the concept and “how to.”
- Transformational. This delivers value beyond the obvious because it has the potential to be life changing for your clients. Agents of change and industry leaders emphasize transformation to help their clients advance.
- Transcendence. Visionaries who are on a mission to change the world fall into this category. They aspire to leave a legacy. You’ll notice how their mission is deeply connected to their purpose.
Where are you? What are your aspirations?
An advanced pricing move that recognizes your value
The best way to move from one category to the next is to spend time with people who are already operating at that level. Notice how people who are serving at a higher level differ from you. Observe their actions, beliefs and focus. Decide which part of their model appeals to you. Then choose one business level strategy which you are ready to adopt.
The Walmart and Neiman Marcus price and value comparison
Now let’s move onto the third insight I gained regarding value and pricing. With pricing, customer service and quality, you can choose two out of three. Decide whether your sales strategy positions you as the Walmart or the Neiman Marcus in your industry. The low cost leader, seeking to serve everyone, is unable to offer the same quality as the high end specialty store.
I teach my clients not to start off as the Walmart low cost leader with competition based pricing simply because this model trains clients to associate you with low cost products. It’s similar to an actor who gets type cast for comedies. Switching to premium pricing becomes difficult. It’ll be difficult convincing someone who equates you with Walmart pricing that you’re now Neiman Marcus quality.
I’ve noticed business coaches who are free or ask people to pay what they can. I wonder how they expect their clients to value their service, when they don’t value their own service. Can they really help their clients navigate the inner work necessary to fully acknowledge their value when they’re not willing to establish a rate for their own service?
Riches are in the niches
Value based pricing is the Cadillac of pricing models. As the name implies, this pricing strategy emphasizes value. Value, however, is determined by the buyer. Research to develop extreme clarity about your ideal client will be necessary.
When done correctly, value based pricing separates you from the competition. Pairing value and price highlights the transformation instead of the tactical steps involved. Emphasizing the transformation helps to answer a potential client’s primary question which is “Can you help solve my problem?” Greater value is placed on successfully resolving their issue than what tools or steps you’ll follow to get the job done.
Follow these recommendations for a business to be successful, and grow while keeping your passion alive. Are you tired of doing work for free because you don’t know how to charge for it? Discover how to get paid what you are worth and attract clients who understand your value. Right NOW claim your FREE RESOURCE and discover how to create value based pricing.