We are a society obsessed with finding a “good deal”, which is why customers today place such a heavy emphasis on pricing. This leaves the business owner with plenty of questions: What should I charge? What profit will I achieve at $x price? How much is too much?
Pricing has traditionally been reliant on a more cost determinant approach. It has always been “this is how much it costs to make the product/provide the service and we will charge an x% markup.” However, this method is outdated and more recently, companies are starting to utilize the idea of value based pricing.
In order to shift our mindset we must first understand one concept: customers and businesses only agree on one aspect of pricing. There are three pieces within every business transaction:
The business wants to increase the price of its products and services to make more money. Inversely, the customer wants to pay less for a product so that they can save money. The business also wants to spend as little as possible to provide its products and services. A customer could not care less what the costs were to the business, all they see is the final product. Finally, a customer wants to get value from their purchase. Otherwise, there would not be a transaction. Congruently, the business also wants the customer to get value from the purchase, hoping that it will lead to a long term relationship. Out of these three factors, value is the common ground between customers and businesses and needs to be the focal point when it is time to start pricing.
Now comes the tricky part. Everyone receives value differently. There are customers that will have a very high sense of value after receiving the product or service. However, you can offer the exact same product or service to another customer and there could be little to no value at all. This is because value is subjective. The solution to this problem is simple, but not easy. The business really needs to understand its customers. By discovering more about the customers, a business can use that knowledge to efficiently price its goods and services.
My challenge to you: Analyze your current sales process. How are you currently presenting your value proposition? What is working during those conversations? What could you improve on? Again, the idea is simple, but not easy. It will take practice to get comfortable with the idea of value pricing and how it applies to your clients. In the end, you will find that it is a much more meaningful conversation and will help your clients be more engaged.