Every entrepreneur — whatever his or her business — needs to understand the essentials of how customers decide what is worth what.
— Read the original article at www.entrepreneur.com/article/273955
In my experience both as a small business mentor and business owner, pricing can be an intimidating and challenging endeavor that can make or break a business. But as intimidating as that previous statement can be, its really not that hard. Check out the tips provided by Mark Stivings summarized below.
Okay so, on the article titled “3 Lessons About Setting Your Price Learned From a Vegas Prostitute” Mr. Stivings explains how a chance encounter with a prostitute (although, the service or industry doesn’t really matter, as these tips will apply to nearly all professions) helped highlight three pricing lessons any of us can benefit from.
#1 Know Your Value
How do you value your product or service? Is it a cut and dry formula such as (material cost + variable cost) x profit rate? Do you take positioning into account? What’s the ‘going rate’ for that type of product or service? What is your unique value proposition (what makes you special)?
Before you can adequately charge someone, you should know what your value is.
As a woodworker, I may charge a set price to build a retirement chest, but if the client needs the chest to be expedited, or more intricate effort is needed to personalize the product, I need to know the difference between the $25/hr rate and a $10/hr. This will ultimately change the value I’d be providing.
#2 Segment Your Market
Price segmentation includes pricing by region, time, buying patterns, a job’s turn-around time and specific customer needs. Companies need to look for customers with different degrees of willingness to pay, then find a way to charge those customers different prices.
Each customer will have a different need, and ability to pay to resolve that need. As such, your value may fluctuate based on what you’re able to offer. Going back to the retirement chest scenario above, our usual turnaround time for retirement chests is 2-3 weeks. Our internal goal is to turn each around within 7 days (to exceed the customer’s expectations), and if need be, we can turn it around in as little as 2-3 days. But that entails moving other projects to the side and making the chest a priority. This disruption may come at a cost, is your customer able to compensate you for it?
Segment your market by recognizing your customer’s need and how your business can fill that gap.
#3 Have a Product Portfolio.
Similar to having different tiers of each product, a good portfolio may help you add complementary products or services that increase the value of your original offering.
Having a product portfolio to me means both having a visual listing of additional products and services you can provide (think of a binder, a slide show, a website, sample pieces, etc.) and having clearly defined complementary products to go along with other services or products you offer.
Ever heard of bundling? It is a very similar strategy which helps you provide more value to your customers, and potentially earn more for your efforts.
As Mr. Stivings said, “… you might not approve of what she does for a living, but if you want to maximize your income may I suggest you learn these three pricing lessons: Know your value, segment your market and build a product portfolio. They apply to most business structures — whether product- or service-based — and across multiple industries.”