Hey!
It seems like I haven’t written anything about pricing for a few weeks and I’m pounding out a few pieces this morning to prepare for some upcoming travel.
So you are going to get a series of pricing pieces over the next couple of weeks…enjoy!
I’ll start the series with 7 pricing basics that folks get all wrong.
1. It isn’t what you make, but what you keep: I used to go with the brand name, “The Revenue Architect” but that made people miss the point that it isn’t how much you make, but how much you keep that matters. Focus on profit, not revenue. I think even Wall Street is catching up with that now.
2. Value Based Billing is magic: Focus on your impact over the activity. Again, too many people will roll out the billable hour, lawyers. Or, charge by the piece processed. What would happen if you rolled out a flat fee for what you did based on value?
3. Brand Equity enables Pricing Power: The stronger your brand, the more likely it is that you can charge more for your products and services. Simple as that. Build a strong brand and you can hold the line on pricing.
4. Your sales team is always going to jump to the “it costs too much” defense: Price may never come up in a discussion and you’ll hear your sales team say that the price is too much. Price isn’t typically a real objection. It is often a reflection of the value or lack of value in an offering. So when the sales team comes back with price, find out where the reaction is really coming from because I bet it isn’t actually coming due to the price.
5. To get your pricing right, do some research: There are a number of ways that you can test and research your price from experimentation, shopping your competition, using the Van Westendorp survey. The key is that pricing is so important that you need to do some research to get it right.
6. Don’t believe me on number 5?: Pricing is marketing’s MVP moment because it is where you capture some of the value your marketing and branding efforts has created. Pushing the price button has a huge impact because for each 1% you can gain on your price, you typically gain 10-12% in increase profit. Remember, it isn’t what you make, but what you keep.
7. Discounts are for dummies: I’ve said it a million times by now, but don’t discount. A part of you should die if you must discount because the numbers on discounting are brutal. The Harvard Business School did a study and found out for each 1% you discount, you lose 10-11% of your profit. In my marketing classes, I learned that you could see losses up to 40%. And, I did some back of the envelope calculations for my business and I saw that it was around 20-25% over the years when people went against my advice. So don’t do it.
Next week, we will hit on how to raise prices.
Dave