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:

  1. Price
  2. Cost
  3. Val­ue

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.