All businesses – my clients and everyone else – worry about their prices. Are they too high? Are customers happy with their pricing structure? How can I get more money?
One of the problems I run into is quality of service. By that, I mean that businesses want to maximize their income. Often, I have clients who ask me, “How low can I drop the quality and still get the same price?” This is based on the assumption that their customers won’t pay higher prices, which is usually total crap.
I encourage my clients to look at it from another perspective. If you raise the quality of your services by, say, 10% how much more will your customers be happy to pay?
Here’s a real-life example. I have a client who puts out a specialty product once a year. Part of that product is a set of pictures. He wants to set a lower price on those pictures, and he assumes his customers won’t pay a higher price for them. So, he supplies them with lower-resolution pix for a low price. Meanwhile, hi-rez versions of those pix sit on a hard drive, unused by anyone.
He sets a price of $10 for a disk containing the low-rez version of the pix. He has a limited number of customers each year who would want the pix – let’s use an average number of 30 customers. Not all of those customers buy the disk – let’s say 10. So $10 times 10 customers is $100. But what if he doubled the price of the disk to $20, and included the hi-rez versions of the pix? Let’s say he loses 20% of the people who buy the disk because of the higher price. He’s now selling only 8 copies.
But, 8 customers times $20 is $160 dollars! For only a few seconds more work, he’s adding a huge perceived value to the picture disk – recipients can share the low-rez pix on the Internet, and can now make good looking prints from the hi-rez versions. He’s also increased his profit by $60.
In general, most buyers don’t mind higher prices as long as the quality – and therefor the value – of the purchased product is higher as well. All well and good if you already have higher quality stuff to sell at a higher price, right?
But let’s say you don’t have a higher quality, higher value product or service to sell. Figure out what it’s going to cost to provide those better products or services, and raise your prices accordingly.
This is especially crucial if you have direct competition! I’ve had many prospective clients who came to me already having done what they thought of as their research. “My competitor charges $X per hour, so I need to charge 10% less.” That’s based on the assumption that you’re going to provide the same quality of service that they do. What would it cost to leave your so-called competition in the dust? Could you make it happen on $X plus 10%? Maybe you’d have to charge 2X dollars. Will you have enough satisfied clients who pay the higher price?
If you’re afraid of losing all your customers by raising your prices, then set up a higher-tier level of service and market that to the “elite” first, and see how that goes. I think you’ll be pleasantly surprised!