Are you charging enough?

Maximise your Price to improve your profits


Pricing well is a skill and maximising pricing almost an art-form


There are three Factors to Max your Selling Price

Apart from knowing what your costs are, some extra research and calculations are needed before finalising your best price:

A. Understand your Competitors

The simplest, easiest, and therefore generally the least accurate method involves working out what your competitors are doing and then setting your price to reflect theirs. This is a DANGEROUS APPROACH when used on its own as it assumes your costs, and the return you need for your risks, are exactly the same as your competitors – That is really, really unlikely….
Your business; your investment; your risk; your needs; therefore YOUR PRICE!

B. Understand the Demands of Customers

The next method of establishing the price is to work out how much your customers will pay for your product or service. I could go on for hours about the economics of supply and demand curves and how lower price = higher demand, but I don’t necessarily always subscribe to this ‘old school’ approach – especially in relation to high-end services and luxury items. Suffice to say Customers will try to get the lowest priced product that meets all their wants and needs. The key here is that their WANTS and NEEDS may not be completely obvious so spend some time digging about to really understand.
See also “Your price is too high!”
Both of the above methods are based on reflecting what others think your product will do for them….This will help you set a “basic price” and keep your business ticking along. However to maximising selling price there is an extra step.


C. To REALLY Max your Selling Price – Understand Your Value Proposition

Instead of using a market driven approach to pricing use a value approach by leveraging perception of value and you can price accordingly.
This method enables pricing of process and product differences, rather than simply fulfilling a single delivery need this pricing method takes a more holistic approach to customers needs and wants – it takes into consideration their feelings.
A great example of how this method can work is fair trade coffee – it is consistently more expensive in a bag and in a cup. Initially the market for coffee was very clear, there were lots of competitors and customers so the price was very stable and the profit margins pretty consistent. But, by raising market awareness as to the conditions the coffee was grown and picked in and offering a more expensive alternative that drove to prevent the bad conditions the market was opened up to a more costly product. The benefit to a customer of fair trade coffee is exactly the same as that of regular coffee – they are as tasty and satisfying except that the fair trade coffee has an extra value proposition – it also enables the customer to directly support poorly paid communities there is an added value of ‘feeling good’ that enables a higher price to be charged.
In addition to the perceived customer value for products there is also a “respect” element to pricing when dealing with services. This approach is really well summarised by Dr Greg Chapman’s Circle of Price:

  1. The more you charge, the more you are respected
  2. The more you are respected, the more your clients comply with your recommendations
  3. The more they comply, the better the results they get
  4. The more results they get, the more clients you get
  5. The more clients you get, the more you charge
  6. The more you charge, the more you are respected

Recognise that if you are a start-up building a value perception can take a while, especially given ‘value’ for services is usually built on trust and testimonials. Having a go-to-market strategy that incorporates a ‘trust building’ and ‘value demonstration’ component will be necessary to implementation of this kind of pricing.

So if your New Year’s Resolution is “make more profit” then start by maximising your selling price!

PS. It is also important to understand the difference between your mark-up and your margin – click here – for clarification.