How to Know How Much to Charge for a Product
Originally published: 22/12/2017 16:29
Publication number: ELQ-57379-1
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How to Know How Much to Charge for a Product

Tips on choosing the right pricing strategy for both services and products.

Introduction

Your pricing can determine the success or failure of your business. The short answer to how much to charge is:


1) Research what people are paying to solve similar problems. You’ll learn the most if you ask your potential customers, but you can also find pretty much any info online.


2) Try to add enough value that you don’t have to compete on price (unless you choose to). This also helps you retain customers.


I was talking with an entrepreneur who has created a product that’s already being carried in stores. Retailers like it because it’s better than existing solutions, and he’s also pricing it lower than the competition.


Wait!


You’re leaving money on the table if you’re offering features people want AND underpricing your competition. Pick one.


If you’re winning on features then charge a fair price. There’s no need to discount…yet. You’ll need all the money you can get to grow your business and improve your product.


If you can’t win on features then you may be able to gain customers by charging less, but that may also be a sign that your business is going fail. Why does the market need a copycat offering? Why will your customers stick around?


One of my favorite moments in business came after the iPod had been in the market for a few years. It wasn’t the first mp3 player—but it was the best. And it crushed the competition.


It forced the other players to regroup. Finally, Sony was launching a totally redesigned mp3 player to challenge the iPod’s dominance. And that’s when…


…Steve Jobs lowered the price of the iPod by $200.


BOOM!


The genius was that Apple collected the full price of the iPod for a few years—up to the point that real competition appeared—and only then did they use price as a weapon.


Yes I know that Apple customers got upset and Steve had to give them each $100. But I still think it was a brilliant move.

  • Step n°1 |

    The Most Important Things About Pricing

    1) Invoice early and often
    2) The only way to validate pricing is by getting someone to pay you
    3) Avoid discounting unless you’re competing on price


    Invoice early and often.


    Two entrepreneurs told me that a client owed them $100k — but they were so busy they hadn’t had time to invoice for a few weeks. WHAT? You’re in business to make money. Invoice your customers immediately, right now, before you do anything else today!


    The only way to validate pricing is by getting someone to pay you


    You can ask, but people will behave differently when the time comes to pay. They’re not lying to you, it’s just that they don’t know. All your theories and best strategies crumble before how people actually behave.


    Remember that your customers need to think they’re receiving more value than they’re paying you. A great example is how Amazon is always adding more benefits to Amazon Prime because members order a lot more stuff.


    Avoid discounting unless you’re competing on price


    For me, one of the hardest things is telling someone I don’t want to take their money. I always want to get the deal done! But I’m happiest when I’m being fairly compensated.


    I work with a ton of entrepreneurs, and the ones who do best are the ones who defend their pricing. They have the most options—and the most leverage in negotiations—because they can support themselves.


    If a company is always offering discounts then they train me to never buy at full price. I’ll just wait for the next sale instead.


    I know it’s hard, but if you’re winning on features then don’t lower your price. It’s worth it.

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