one of the most important and one of the
most critical questions
you have to ask yourself as an
entrepreneur is
how much should you charge for your
product or your service now when it
comes to
pricing is such an important decision
because it affects
your marketing done properly pricing
could also be a
marketing strategy so today i'm gonna
give you not one not two not five
seven pricing strategies so then from
now on you know exactly
how you should price your product or
your service you see when you are not
charging enough so let's say your price
too low you're not making a profit
you're not making money when you price
too high then maybe you're not getting
customers you're not getting enough
volume
so you won't grow so there's that fine
balance the just the right
type of pricing strategy could change
everything
pricing strategy number one price to
your
competition that means find out what
your competitors are charging
and then maybe you charge kind of the
same let's say they sell this product
for a hundred dollars then you'll say
okay i'll sell my
for also a hundred dollars now sometimes
i also see entrepreneurs what they do
is they would take the the average
prices of they say three
top competitors and then they would just
add it together and divide it up
that also i've seen that before price to
your competition now there is
some industries in some cases that might
be okay
you want to be competitive right
especially if you are in a what i call a
commodity kind of a business that means
your customers they are shopping for the
best price
so by having like a price that's maybe 5
10
higher than everybody else within your
industry that might be hurting you
because
your customer is like hey you know what
you charge a hundred dollars i talked to
your competitor your competitor only
charges 90 or 95.
now unless you've done your proper
marketing or you're not a position
yourself
that might be a difficult objection to
overcome so prior to your competition
now there's a downside to this that
means you are always
reacting right you're always reacting to
what your competitors are doing
they bump up their price you bump up
your price they lower their price
you lower your price you're always
reacting to what your competitors are
doing
if you want to be a leader ideally we
want to play offense
we want to be the one that's leading we
want to be the ones that dictating the
terms
dictating the price in the marketplace
so others
follow versus you follow others does
that make sense
pricing strategy number two price to pay
the bills i call this the break even
strategy
what it means is you price it enough so
that you just
break even it covers your overhead it
covers your cost
well that might be good in the beginning
in some cases that you are maybe
entering a new marketplace
you're testing things you're saying hey
you know what all i want to do just to
break even
i just want to test the water see how
the marketplace reacts to my offer
it's possible or sometimes you got to
use it very very
carefully right otherwise you'll get
bankrupt doing this because you're not
making a profit
is you are pricing you're using a
break-even strategy
to acquire a large volume of customers
sometimes i call that their
self-liquidating offers meaning
this is for your low ticket offer on the
front end right
you price it just want to break even
right if i'm i'm selling a book right
i don't make money from installing the
book but just to break even
that's fine because that's what a book
cost is 20 bucks right
so you sell the book similar price but
you know
all the profits all the wealth comes
from the follow-up
offers so you know all the profits all
the wealth comes from
afterwards the follow-up what you offer
to the
customers who have bought your book
right that's what we want to do
this is making sense strategy number
three and that
is price to time this is probably one of
the most
common pricing models a lot of people do
this lawyers professionals accountants
use this a lot they charge per hour
or they charge per day or charge per
week or charge even per month that's
kind of like a retainer model
price to time how much time am i
spending on
this particular task how much time am i
spending
on on this project right and that's how
i would charge
so they charge 20 dollars fifty dollars
lawyers hundred dollars two hundred
dollars five hundred dollars per hour
price to time now this model is very
very common but to me
personally i think this model is getting
out of date
as we are now transitioning from the job
economy to what i call skill economy
now companies and people they are paying
for
results they much prefer to pay for
results and here's what i believe
when you price the time the problem with
that model is
the relationship that you have between
you and your
client that relationship is always
this is a conflict of interest what i
mean by that
okay let's say you charge 50 per hour
for what you do
okay and you build them 50 bucks per
hour and
this is going to take you 10 hours and
you build down 500 bucks
okay that's one thing but let's say you
could get this done
in eight hours
i'll be honest are you gonna build them
eight or ten hours even if you could get
it done in eight hours are you gonna get
it done within eight hours
because the relationship is the longer
it takes for you to finish something
the more money you make versus from the
client's perspective
i want to get this done as sufficiently
as fast as possible
but yet i'm paying for time so how does
this work
this is always this a conflict of
interest you're you you want to make as
much money as possible
they want you to get it done for as
little time as possible
so price the time i mean there's a time
and place for this but
i don't believe in that so much anymore
because
the whole model of backing the the
industrial age should clock in and clock
out
no i don't believe in that here's what i
believe in
no fee is too high for success and
almost any fees too high
for failure when your clients are paying
you they're paying for results
when can we get this done and shouldn't
they be rewarded if they could get it
done
in five hours instead of eight hours
if you can get it done faster better
more efficiently why
shouldn't they be rewarded why would i
have to pay
more for you to drag the projects longer
it makes no sense
but it is a very common model and still
a lot of people use it
if you want to use it that way that's
fine too price to time
pricing strategy number four price to
cost
plus now this is very common in let's
say
in the construction business right so
on the surface very logical so this is
gonna
cost how much to get this project done
let's say this project is going to cost
a million dollars
that's the cost right and then you'll
just add a 10 15
markup on that right let's say i'm
selling this this item is 10 000
i'm just going to add my mock-up my 15
right that's fine
that's one way to do it now you see this
again very common interior design
and construction and a lot of different
industries now what's the problem with
this model
it's very common model but same thing
with the price to time model
it's something that has been around a
long time it's logical
but again they are getting paid
based on spending more money so
if i'm a contractor let's say and i know
this project
with materials and everything it's gonna
it's gonna cost a million dollars
and i'm gonna earn my market on there my
15
150k now if there are ways
that i could save money if i can use
materials that are
better but actually cost less and i get
this whole thing done
maybe 800 000
now most contractors not saying all but
most contractors
would think well do i really want to get
it done for 800k because now i make less
money
doing the same amount of work or is it
in my
kind of self-interest best interest to
spend as much money as possible
from the client's perspective on the
other hand the more money that you spend
the more expensive the materials the
more expensive the labor
the more money that you make from the
client's perspective is the opposite
how do you get the the best product how
to get the best outcome for the least
amount of money
again it's conflict of interest but very
very common price to cost
plus now let's say if i am
building a a building i'm building an
office i can tell you that's not the
model i would strive for
i would do something that's very
completely different example
i would negotiate with the contractor
this is what dan lok would do
i would have a very clear budget and i
would say here's the budget
right that's a million dollars okay but
here's what i would do
out of this million dollars chances are
you're gonna get paid 150k
i'm more than happy to pay 150k but if
you could save me money the two things i
look for
if you get it done for 800k you're smart
i'm going to give you a bonus i'm not
going to pay 150. i'm going to pay you
another 20 000
30 000 whatever it might be right
depends on whatever the project is
second thing kpi i would have is if you
can get it done
on time or even early i'm going to pay
you another bonus
for the results that you produce so now
then we're on the same page
right you follow what i'm saying now i'm
on the same page so you and i we're
thinking a lot about the same thing
we're focused on the same
thing have the same goal to get it done
get the project done
on time or early you get compensated for
that to get it done
below the budget and save money you're
going to compensate them for that
this is how that works so the the
contractor who takes on this deal
knows i am result focused
we're on the same page he doesn't need
to find ways to to cut corners or try to
mock up stuff or materials and all that
no
it's in his best interest to work on my
behalf to lower the cost
to get a great product done but at a
lower cost
timely fashion that's what i would do
but again you know that's one pricing
model that's out there that's pretty
common
pricing strategy number five and that is
price
to the package now i like this one i use
this one
a lot it means that you are creating an
offer you're creating a package and
simply let's say the package the total
value is worth
ten thousand dollars and you're only
charging
your customers one thousand dollars or
two thousand dollars
they're only paying a fraction of what
the entire value the package is worth
i like this a lot first of all it makes
the offer irresistible
number two if you want to increase price
all i need to do is how could i increase
the value that i deliver
and i like to use a general rule of
thumb and i'm giving that to you i call
that the
the one to ten meaning for let's say for
an educational product
for one thousand dollar i charge i wanna
deliver at least ten thousand dollars
worth of value
if i wanna charge two thousand dollars i
wanna deliver at least twenty thousand
dollars worth of value
now although some of those products some
of the bonuses
it could be digital products right that
is instant access
it actually doesn't cost me a lot to
deliver that value which is great
because it's scalable
but at the same time the value is there
right the value it's
real value this is how much it would
cost if they buy it
from from different sources so that's
very powerful
so price to the package so think about
how you can apply this
in your business versus just selling the
the widget the product or the whatever
that you're selling
how can you package in a way that is
attractive let me give you another
example let's say you are selling
website development instead of saying
hey you know what i'm gonna charge you
100 bucks an hour to design your website
you see how that's like
well how long it's going to take well
it's going to take me you know 100 hours
okay
i'm going to pay you 100 hours versus
package
so this website development package we
are going to
design let's say a 10-page website for
you
okay and we're gonna also set up a blog
for you
and we're gonna create also 20 landing
pages for you
we are gonna create uh 30 emails
follow-ups
for you so that you can convert those
unc convert those leads into
sales right uncover leads so you see how
it's a package
now the whole thing if you buy this and
you buy this and you buy this you buy
this
and you buy this or separately it's
going to be
fifty thousand dollars i'm just making
this up fifty thousand dollars
but if you buy the whole thing from us
right now
uh i say as a sign up as a client today
it's gonna be
twenty thousand dollars now why are you
giving them that
so you may be thinking well then i'm not
giving them a discount you're not giving
the discount
you price the package you notice the
package you put together
and you offer a more complete solution
so it's more
attractive because you're thinking on
the client's behalf
you're thinking ahead say hey you know
what we could build a website
but won't you be needing some landing
pages down the road won't you be doing
some emails down the road won't you be
needing all these things oh i never
thought of that
so why don't we put together a package
with price according to that i like this
model a lot
pricing strategy number six and that is
price
to positioning what kind of positions
you have in the marketplace
if you the leading authority in your
marketplace
you could charge a lot more money now
most people
do a lot of sales but they don't
understand how to do
positioning how do you position yourself
as the go to person to go to brand
for whatever it is that you do right so
let me give an example
let's say when you understand the
power of supply and demand so if you go
to clarity right now
you see on the clarity site my hourly
rate is 10
000 u.s per hour
10k now why would someone pay me 10k
to consult with them on an hourly basis
that's a lot of money
supplying them supply and demand when
you understand
basic economics if you have
a lot of demand a lot of demand
and you have very little supply and
supply in this case is my time we only
have 24 hours a day
you can now charge a lot more money
because there's a
finite amount of supply you notice a lot
of premium products out there in the
marketplace
very often a lot of demand
limited supply so ask yourself how you
can use
this to your advantage how could you
create a lot more demand for what you do
what you offer what you sell and then
what you want to do is you want to
restrict the supply just like the
diamond industry do you know there's
actually a ton of diamond that's out
there
but the diamond industry is smart enough
they know if they flood the market with
so much
supply then the value of diamond would
go down dramatically so
they restrict the supply and they drive
up the demand
right in some cases they manufacture the
demand
so then diamonds are way more valuable
but keep in mind that's price to
positioning
that's all that is it's price to
positioning pricing strategy number
seven
price to value this is my go-to
this is my favorite because that's how i
like to buy things as well that's how i
like to pay for things as well
price to value if i'm paying for results
i would be
more than happy to pay a premium for
results i don't care about time
i don't care about effort i care about
results
so if it's a project and i pay certain
amount of money the project gets done
i'm more than happy but price to value
it means that there's no ceiling to your
income so let me give an example
let's say you run a consulting firm you
do business consulting
instead of charging the clients for i'm
gonna charge you x
amount of dollars per hour not very
compelling not very enticing because
the clients success or failures got
nothing to do with you
if they actually get more results they
generate more revenue they pay say more
money
if they get no results you still get
paid well that's not good that means
your client is taking on all the risk
and you're getting all the rewards or
you could price it in such a way price
to value
let's say your client is doing a million
dollars a year in revenue right now
that's the base you come in and say you
know what i can help you i am
the world's best consultant on this
particular topic
i can help you get more sales get more
customers get more revenue
okay but whatever you're doing right now
they're one million we're not going to
touch that that's the base
but let's say in the next three years
that through working with me
i'm going to put some systems in place i
could help you go from 1 million
to 5 million in the next three years
we're going to increase your revenue by
500
that's our goal right and that's your
goal from here to here
the 1 million we don't count but the 4
million
that i've been able to to help you
gain in the marketplace without me
wouldn't you wouldn't have had that kind
of growth
out of four million if i could help you
do that would you be comfortable of
paying me
a small percentage of that it could be i
don't know five percent ten percent
whatever the number is right
only on the increase to four million see
now that's price to value now what if
you could only help this client to get
to 3 million
you get paid a little bit less you get
compensated a little bit less or
you have to get the 10 million you hit
out of the park
right it's a home run great you get paid
more see now
your interest and your clients interest
it's a line
right and also this means that there's
no ceiling to income it also means
your client knows you're not gonna
nickel and dime you're not gonna nickel
and dime here meaning
oh yeah i we did this much and i'm going
to charge you i'm going to invoice you
for another
another three hours of work that's
[ __ ]
we only care about results if you could
go from 1 million to 5 million
doing this much work
the client doesn't care you want to go
from here to here you do this much work
the client doesn't care either so now
you're working smart
now you're not getting paid based on
time you're getting paid
by what you bring what value you bring
to that time
and maybe maybe instead of spending this
much time
you only need to spend a couple hours a
week on the project
as long as you get the results or you
can simply make an introduction
hey you know what your business is doing
a million i have another client here
that i know would be a perfect fit why
don't you guys form a strategic alliance
and do some business in between
and you make the introduction and from
there you bring in a couple extra
million of revenue to their business how
much is that worth to this client
a lot has nothing to do with how much
time you put into it
has to do with this that's price to
value see how it changes the way you
look at things it changes the way that
you deliver value it also changes
how fast you want to deliver value you
want to deliver
value as much and as fast as
possible this is my favorite model price
to
value now depends on what you sell
comment below let me know
what pricing model you're using right
now what pricing strategy you're using
right now
now there's no black and white sometimes
within my business
my time clarity ten thousand dollars per
hour that's price to time
that's fine price to positioning price
to value
maybe you do a hybrid model a
combination of of these models these
strategies
or maybe front end you do price to
to break even right but then or price to
your competitors but then on the back
end you have some other
models maybe price to value that's
perfectly fine as well
but what i'm saying is you want to spend
some time on this
this shouldn't be done so just like
half ass this should be done very
strategically