Why you need a 7 step formula structured pricing system
There are many things in life that need structure. Pricing is one of them. Without a structured system pricing simply happens by chance. By luck.
Instead you want to control the process so that you do pricing the same way every single time.
You can watch the video here.
I have a seven-step formula for achieving this:
1) Decide upon your price discrimination strategy
This is the strategy behind charging different customers different prices. And this in itself is fundamental to value pricing since we know that each person values things differently. This means we can’t have a single price and instead need to price each person separately. One of the most powerful, and easy to understand ways of doing this is through menu pricing, giving customers a choice with a number of different options.
2) Work out how to add more value
When you have decided on the menu pricing options that you are going to present to the client you need to look again. What can you do to offer a better solution? How can you add more value?
For example, if a customer asks for a cash flow forecast then think about why they need it? Once you know that you have a better chance of adding value, by offering them something more than just the cash flow forecast they have asked for.
This is an important differentiator that will stand you apart from your competitors. It not only stands you apart but also allows you to charge more because you are doing more. You are adding more value.
3) Communicate that value
Once you have identified the extra value you can offer the important thing is explaining to them exactly what value you are offering.
Don’t simply assume they understand what you do. They may not.
Turn features into benefits – and quantify those benefits where possible, making that benefit (and therefore its value) as big as possible.
4) Manage expectations about how you get paid
Payment terms are also an integral part of the whole pricing equation so make sure that you explain that properly to the client. When you’re clever about this then you are able to use payment terms in very imaginative ways which will help you to get better prices as a result.
5) Work out what your price is going to be
In this step, you need to work out the number – the price – that represents the value to the customer. That’s not a value based on your time but on the value to the customer. In fact you should never come up with a price that is based on the time you spend on a client’s work because there is no correlation between how many hours a job takes and the price.
6) Make use of price psychology
After you have a price use price psychology techniques to work out how you can make that price even more convincing. How can you make that price seem smaller than it really is – even though actually we are actually trying to make prices bigger rather than smaller?
7) Think about power strategies
Finally, before you reveal that price, think about power strategies. One of these is the power of testing.
You should always be testing. Continuously.
That’s because there is no such thing as the right price. It doesn’t exist because value is subjective. What is true is that there is always a better price. And you will only find that by continually testing.
Without these 7 steps you are simply plucking a price out of the air. And that doesn’t work.
Make sure you consider these 7 steps every time before you reveal a price to a client.
To find out more about these 7 steps check out my free video training programme "A Systems Approach to Value Pricing".
Wishing you every success on your pricing journey
Chartered Accountant, public speaker and #1 best-selling author of
“Effective Pricing for Accountants”
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