Ask yourself – what’s going on in your prospect’s mind during your very first conversation?
Pricing. Period. They want to know “how much you cost.”
That is… until you start leveraging the power of tonality and emotion. Once you learn how to do that effectively, the hangup of pricing almost goes out the window.
After all, pricing is a data point, and people don’t make decisions based on data points. They make decisions based on emotion.
But pricing matters for other reasons, especially out of the gates, and particularly for small bizz owners, early-stage founders, and solopreneurs.
The cost of your product or service sets the tone and has to make sense in the broader context of your industry. That’s why McDonald’s can’t sell hamburgers for $25.
But wait… you might be thinking to yourself, “Some restaurants sell burgers for $25, $50, even $75 or more!” And you’re right. But those restaurants aren’t playing the commodity game like McDonald’s or Wendy’s. They’re playing a different game entirely.
Don’t worry – we’ll dig into this today, and we’ll discuss what it means for you and your pricing structure. We’ll cover the five different pricing strategies to consider, and we’ll wrap it up with critical points to consider when discussing pricing with prospects.
So let’s jump right in.
Pricing Strategies: How to Set Your Price
I’ll say it again, pricing matters immensely.
Set your prices wrong and you could be losing sales left and right. Get it right — and learn how to effectively communicate it to prospects — and you’ll set yourself up for massive success early on.
So… how do you price your products or services? What are the different pricing strategies to consider? And why does any of this even matter? Let’s find out.
Five Pricing Strategies
- Cost-plus pricing – Cost-plus pricing is the most common type of pricing strategy — especially in retail and consumer goods. This is where you set your price at a level that will cover the cost of production plus profit margin. Some B2B companies price based on cost-plus, but it’s usually not recommended. You’ll be short-changing yourself in a big way.
- Value-based pricing – With value-based pricing, you set your price according to the value it brings to your customers or clients. This is a winning formula, and the pricing strategy that I almost always recommend for B2B success.
- Dynamic pricing – Dynamic pricing allows for the seller to adjust the price as they see fit. Usually determined by things like supply and demand, and other economic factors. You’ll see this pricing strategy in the contracting world, lumber yards, and in many other service-oriented businesses. Very few B2B companies use a strictly dynamic pricing model.
- Competition-based pricing – This pricing strategy takes into account what competitors are selling a similar product or service for, and then sets prices to compete with these offers. You’ll see this pricing strategy implemented by small business owners and early entrepreneurs who don’t really know any better. While it’s easy to get going with competition-based pricing, it’s usually not recommended for B2B firms.
- Dynamic, Value-based pricing – This is the money shot. If you’re in the B2B space, and you have a proprietary product or service that you bring to market, I highly recommend a dynamic, value-based pricing strategy. This is a hybrid of #2 and #3 above. Yes, it’s specific, and yes, it works. It allows you to set your price based on the value you deliver to your customers/clients, but also gives you flexibility to increase your prices as you wish (so long as it’s ethical).
A quick note on software-as-a-service (SaaS) pricing. Certain SaaS products can get away with things like:
Bundle pricing – selling multiple products/services together at a discounted price
Freemium pricing – bringing people into your ecosystem at no charge, with the intent to upsell them into a paid package
Subscription pricing – charging customers a monthly recurring fee in exchange for a product/service
Timing is everything
If you share your pricing too early, you give up the captain’s chair to your prospect and put all the power in his or her hands. You must stack the value first. Only discuss pricing after you communicate the value and transformation that will occur by purchasing your product or service.
Some will say you should discuss pricing upfront, as it’s a good qualifier. This way you won’t waste time talking to a prospect who could never afford your product or service. Sure – this has some merit. But don’t you already know your target market? You should know even before your first touch with the prospect if they (their company) can afford you. And you should already have a good idea of their budget during the sales-qual stage of their journey.
I like to bring up pricing about 75% of the way through the sales conversation (remember, it’s not a “pitch”). At this point, I’ve stacked the value, communicated the transformation, and now I can turn any price objection around as a benefit. Remember, objections are just opportunities to further solidify your offer as the perfect solution in your prospect’s mind.
Final Words: Never Budge on Price
If you discount or otherwise drop your prices on your prospect’s pleading, then you’ve cut yourself off at the knees. It’s now a race to the bottom. You will always go to price cuts instead of striving to communicate value. And this is not how you win at sales.
More importantly, this does something to you psychologically. When you budge on price you’re telling yourself that your product or service isn’t worth the cost. And as they say, if you don’t believe in the value of your product, you’ll never win the sale.
This doesn’t mean you can’t negotiate at times. I often negotiate on additional projects above and beyond my flagship offer. Or, if you want to “price anchor” above your normal asking price, you’ll have room to “discount” your offer — although you know it’s not a true discount and you won’t be losing your shirt.
Finally, if you’re able to offer some sort of money-back guarantee, you’ll take most of the risk out of purchasing your product. Even if it doesn’t pan out for your prospect, most people never cash in on money-back guarantees. They figure, you win some, you lose some. And they’re right.
In the end, you must thoughtfully set your prices and do your best to stick to them. It’s the difference between making big waves in your industry and hardly making a splash.
There is power in pricing. So it’s time to use it to your advantage.
Until next time…