I've been coaching business owners for many years now. And there's a significant thing I see so many people struggle with. It's perhaps the most essential aspect of all!
The 2 P's – pricing and packaging.
Some people seem to nail this from the start. They've either previously run a business, use a business coach, or have studied their industry to know the price point.
Others flail around, bouncing ideas of family and friends, picking a price and seeing what happens.
The motto I share with business owners in my Brand Builder Academy is:
MAKE SURE YOU'RE PRICING FOR VALUE FOR YOUR CUSTOMER
AND PROFIT AND FREEDOM FOR YOURSELF.
You want your customers to see the value in what you offer; however, you want to value yourself highly enough to charge what you're worth and build a business that works for you.
When you discover different pricing strategies, you'll work out the best way to charge for your products and services.
1. Market Oriented Pricing
If you've already sussed out your competitors, you'd have some idea on pricing. You'd consciously price your products/services either above, below or matching this price range. You'll have a gut feel for where you sit in the marketplace and price accordingly.
One question I ask is, ‘Do you feel you're Kmart or Chanel or somewhere in between?'.
When starting in business, many people have the ‘Imposter Syndrome'. They feel they can't put up Chanel prices from the get-go, so they shy away and position themselves in the Kmart realm.
But you must know the value of what you're putting out to the market and never ever undersell yourself.
A quick tip: If you under-price your service/product and think, ‘It's ok, I'll get more clients anyway', you'll find this can have the opposite effect. You'll end up deterring the types of clients you want to work with. I know; I've seen it happen!
You've got to:
Imagine standing at the edge of a pond with a pebble in your hand. Then, with a gentle flick of your wrist, you send it skimming across the top of the water. Well, that's the idea anyway – mine usually just go ‘plonk'…
When referring to business pricing, skimming is putting something out there and then watching the ripple effect.
For example, you may offer a significant discount on the first month of your program to entice people to try you out. You'll see this with many online programs – ‘Free trial for the first month'.
You can limit the extent of what's offered, but it draws people in. It's a bit like standing at the edge of the pond and encouraging people to try skimming that rock – ‘Give it a go, it's fun, I know you can do it with practice'.
The strategy of skimming is a hook.
Once you've hooked them, they've had a taste of what you offer and loved it; they're likely to continue to pay at the full rate to continue your service.
Quick tip: don't simply hook someone on a free (cheap) trial and ignore them. Nurture them throughout the process, checking in and answering questions to create a personal connection to help them commit to your offering in the future.
3. Cost plus pricing
This strategy is where you work out the cost of your materials, the labour involved (your time) and your overheads.
People often forget to factor in one or two of these components.
Once you've figured out a cost to cover all of this, you need to add your profit margin.
One of the biggest mistakes new business owners make is forgetting to pay themselves. You don't start a business to break even!
Making sure you have a healthy profit margin will allow you to cover all your costs PLUS have money left over to pay yourself and reinvest it where needed.
4. Hourly rate
Many people who run a service-based business often charge an hourly rate. You can choose to charge $80, $150, $500 an hour – it's totally up to you!
Tip: Work out what you want to earn for the year and then work backwards.
For example, if you want to earn $100,000 for the year. Divide that figure by 48 (weeks of the year, taking into account your 4 weeks of unpaid leave), divide that by days you will work (3, 4, 5 days a week etc.) and then by hours.
Let's break $100,000 down to an hourly rate for someone who wants to work 4 days a week, 8 hours a day with 4 weeks holiday:
Hourly rates work for many people, especially when starting a business and transitioning from employee to business owner. Remember that you're limiting yourself by having an hourly rate as there are only so many hours in the day.
5. Value packaging
As you get established in business and comfortable with your offering, you'll find that packaging your products and services is one of the best things you can do.
Not only do you provide your customers with more value (or perceived value), but you will find you can charge more for less work. Amazing hey!
Here are some ideas for creating a packaged product (let's use coaching):
Congrats, you've created passive income.
You may be thinking, but if I sold them individually, I'd get more money, but it's about creating value. When your customers see an offering with everything they could want from you, and it's discounted, they're more likely to make that purchase.
So, work out a cost that's still good for you and consider, would this package and resulting sales be better than waiting for 1 higher-priced sale?
I'm sure you'll find value packaging works a treat.
6. Dynamic Pricing
You may have heard this strategy referred to as demand pricing. In a nutshell, the demand for your product or service helps you determine the price you can charge.
For example, if you have 100 people wanting a product, but you've only got 40 available, you could potentially double the price of your product, and people will still pay for it.
To price your products or services this way isn't for the inexperienced. You 100% need to understand the market and the supply and demand side of the business. There's no point overpricing an item if it's not going to be snapped up at that time and having people go elsewhere.
Dynamic pricing allows you to flex as you need to in your business. For example, this strategy works when your product aligns with seasons, stock numbers or exclusivity strategies.
Sometimes, working out your business pricing and packages can take some trial and error.
And ultimately, what you choose to do is up to you. But to be successful, it's essential to understand your business and marketplace and have a clear strategy.
One of the most important things when it comes to pricing your products and services is to take the time to get the big picture to create a successful marketing strategy.
If you've got any further tips on what's worked for you in your business, I'd love for you to drop them in the comments and share them with our community.
Or if you need help creating a profitable business without burnout, access my free masterclass today
In this video masterclass, I’ll share the three key areas you need to focus on to scale your business and build a bold brand so that you attract the client that want what you have!
Access it straight away and start watching and learning today!