Smarter Pricing Strategies: Your Perceived Value

Take a look at the leaders in your industry. How many of them are earning significantly more than you are?

For example, if you’re a blog post writer earning $5 per article, you might find writers you respect who are earning $30 per article.

How do they do it?

Simple. They have increased their perceived value. Their clients believe they are worth the extra money. You can increase your perceived value, too.

Make sure you are doing top notch work

If you’re a writer, your content must be professionally researched, written and edited — and delivered on time. If you are a product seller, make sure your stock is top of the line.

Exceed quality standards

Compare your work to that of your industry leaders and then take steps to make match or exceed their quality. Now, that doesn’t mean copy them or change everything to make your business just like theirs. But if, for example, their fabrics are 100 percent organic, and you’re serving the same market, you may want to find material of the same quality. Or if the leading web designer in your market produces high quality websites, you should be producing high quality as well.

Become an industry expert

Once you have quality nailed down, you need to help others understand that you know what you’re doing. You can do this by becoming an industry expert.

Some of my clients have trouble with the idea of being considered an expert. They spent every day providing their products or services, so they know more about what they do than the average person. This makes those clients experts in their industry.

Yes, there are people in the industry with more expertise, more education and more experience. But that doesn’t make my clients any less experts in their own right.

Keep this in mind and take steps to establish your expertise.

Once you’re working towards becoming an expert, you’ll want to keep your strategy positive…

Smarter Pricing Strategies: Notify Clients Early

Remember the last time you went to the gas station expecting to pay a certain amount — and discovered the station had raised their prices 10 cents in the past day? After you got over the initial shock, you might have even been angry that the prices had skyrocketed in such a short time. Avoid making your clients feel the same way.

Tell new clients up front

I mentioned earlier that you should create a pricing strategy. Once you have this strategy in place, you’ll know how much you’re charging now, when you”ll be raising your rates and by how much. So when you bring a new client on board, simply let them know that your quarterly or annual (or whatever) rate hike will be coming up and that they need to prepare for it.

New clients will appreciate your honesty and they’ll make plans to absorb your new prices if they want to stick with you. We’ll talk more about making them want to stick with you later…

Notify your existing clients

You’ll want to send a note to your existing clients ahead of time so that they know a rate hike is coming. This way, clients can adjust their budgets and they won’t feel like you’ve dumped higher prices on them at the last minute. I recommend a three month notice. Even better, if you have written contracts with each client, write your rate increases into the contract. You can also setup your long-term contracts so that they are re-evaluated after a certain period of time and rate hikes applied.

Next, we’ll talk about how you can ensure your clients want your product or services, even after you raise your rates…

Smarter Pricing Strategies: Restructuring Your Packages

Quadruple all your prices and tell your clients to like it or lump it! No, that’s probably not the best way to roll out your price changing scheme… But I’m sure it’s a great way to make sure you lose all your clients! We’ll talk more later this week about how to share your new pricing strategy with your clients.

But for today, let’s talk about how you’re going to create that new strategy.

Basic price increase per product or service

I’ve discussed why you need to raise your prices, guided you through evaluating your current structure and showed you the hidden costs that you may not have already factored into your current pricing. But what do you do with all that information?

First, you need to make sure you understand how much it actually costs to produce your product or service. Second, you need to figure out how much profit you need to earn.

Profit is the total amount you earn for your product or service, minus the costs associated with producing it.

So, if you need to earn $3,000 a month in profit, and the widgets you are selling cost you $30 each to produce (including hidden costs) and you’re charging $60 for them, how many products are you going to need to sell each month? No worries, I’m not going to make you do math…

You’ll need to sell 100 products. Now, let’s say it takes you 1 hour to product each product and you have 20 productive hours per week. Is this doable? Actually, no. In a normal 4-week month, you’ll be short 5 hours. The solution?

Raise your prices just $10 and you only need to make 75 product, which you can accomplish in a little more than 18 hours. Viola!

Understanding what you need to product and whether or not it is actually doable can help you control not only your prices but also your quality of living.

Revising your packages

Not all price increases are as straight forward.

Some of my clients have packages in which several services are bundled and a discount is given for ordering a set number of hours per month and paying in advance on a retainer basis.

While in some cases factoring in hidden costs and then raising the package prices will be sufficient, in other cases, you’ll need to restructure the packages themselves.

For example, one of my clients offered writing services in packages of so many articles for a set price per month.

So, she might have sold 4 articles a month for $48. If she wrote those articles herself, she could knock out all four in about an hour, making $48. Factoring in hidden costs, most of that money was profit since she had long-standing relationships with the clients.

The problem became a matter of scale. When she reached 50 clients, she couldn’t write all the articles herself. So she outsourced.

Her ghostwriter wrote 4 articles for $10 each, leaving my client with only $8. Multiply that by 50 clients and she was paying out $2,000 to the ghostwriter — and still having to edit the work produced by the writers. So while she earned $1,600 on the articles, she also spent 25 hours editing the articles and another 10 hours rewriting articles that the clients didn’t like. The she hired an assistant to take care of communicating with the angry clients who weren’t happy with the quality of writing.  As you can see, that client quickly started losing money.

The point?

It’s better to charge more money and have fewer clients.

Instead, it’s better for her to decide that she wants to write for 10 hours per week and that she wants to earn $5,000 per month. The client knows she can write 4 articles in one hour. She she can produce 40 articles a week, or 160 articles in a four-week month. Now, we see that if she charges $125 for her four-article package, she can make her goal with 40 four-article-per-month clients.

Even better, she can sell more articles per client each month and reduce the customer service hours she spends. So, instead of selling each client 4 articles at $125, she can sell 8 articles for $250, or 16 for $500. At 16 articles per client, she’d only need 10 clients. Much easier to manage!

And you know what they say: It’s easier to sell to an existing client…

Of course, the question is, can you pull off charging higher fees? Yes! We’ll talk about how later this week…

But tomorrow, we’ll talk about some ways that you can raise your prices — without giving your clients a heart attack!

 

 

Smarter Pricing Strategies: Hidden Versus Obvious Costs

I’ve been in business since 2002 and one of the most common complaints I’ve heard from my online business clients is that they aren’t earning enough money.

In most cases, the business owner had plenty of clients — and typically more work than she could hope to complete while managing a family as well. The problem?

When my clients would figure out how much  money they were making per hour, the resulting number would often be in the single digits.

The problem?

In some cases, the problem resulted from choosing an excessively thrifty target market — which we’ll talk about later.

But in most cases, the problem resulted from owners only considering the obvious costs of providing their services or products.

Let’s talk about some of those obvious costs first.

Obvious costs

A big mistake small business owners make is only considering obvious costs when they build their pricing structures. For example, a web designer might charge $20 for a graphic that takes 15 minutes to build.

At first glance, the graphic designer calculates that she can make 4 graphics in an hour and is therefore earning $80 per hour. Sounds wonderful, right?

Or perhaps a cloth diaper maker sits down and figures out that she can sew one cloth diaper for $3.35. So if she sells 30 diapers for an even $10 each, she’ll have profited $200, right?

Not quite so fast…

Hidden costs

Yes, I’m repeating myself. But this point is so important.

Remember that web designer who thinks she’s $80 per hour? She neglected to account for the two hours of email and phone consultations with the client necessary to build the design concept, and the hour she spent later revamping the graphic when the client changed her mind about what she wanted. (Of course, some of this can be taken care of with a contract. If you’re a service provider, you do have a contract, right?)

In reality, the web designer can only create one graphic every three and a half hours. At $20 per graphic, the designer is only earning $5.71 per hour. And this doesn’t count the other hidden costs that we’ll talk about in a minute.

Let’s take a closer look at our cloth diaper seller.

She’s a pretty fast seamstress, so it only takes her two hours to create one cloth diaper. That means she has 60 hours in that pile of 30 cloth diapers she’s selling. Once she figures out how much she’s made, the profit doesn’t look too good: Only a measly $3.33 per hour!

And that’s not all.

Neither the diaper seller or the graphic designer have taken into account the hidden costs of:

• Time researching/purchasing materials
• Time spent providing customer service
• Labor to scale your business beyond what you can personally accomplish
• Advertising and marketing
• Insurance and liability coverage
• Miscellaneous items such as office supplies, computer and printer and more.

As you can see, even the $5.71 and $3.33 starts to dwindle when you start looking at the full picture.

What to do?

Now that you know the hidden costs that are likely to eat into your profits, you can develop and accurate picture of how much it actually costs to product your product or service.

Now, you just need to compare that picture to the price structure you currently have.

Are you making a decent amount of money, peanuts — or actually paying your customers to buy from you?

If you’re in the later two categories, you need to follow the Six Steps To Raising Your Prices that I outlined in the first installment of this series.

Tomorrow, we’ll talk more in depth about restructuring your packages…

Smarter Pricing Strategies: Evaluting Your Present Structure

We left off yesterday with a list of steps you must take in order to develop an effective pricing strategy for your small business. Today, we’re going to take a look at the first step: Evaluating your current pricing structure.

Some people start their price re-evaluation efforts by looking at the competition and then trying to match or beat their prices. I suggest though that you’re ignoring the biggest problem you have when you employ that technique.

The problem?

Chances are, you are considering raising your prices because your current pricing isn’t working for you.

Perhaps you’ve crunched some numbers and realized you’re losing money on every project you do. Or maybe you’ve realized that after all the time you put into a project or producing a product, you’re only making $3 an hour — and no one is giving you tips.

Over time, this can wear you out, lead to resentment and burnout.

It’s best you plan a course and take action.

The evaluation process

I recommend you plan out your evaluation process and follow through with it in order to develop an accurate picture of where your business is.

Here are a list of steps to take:

1. Calculate the costs of producing your product or service
2. Survey your existing customers
3. Research your target market
4. Then research your competition

Calculating Your Costs

Whether you’re producing a product or providing services, you have to spend time or money. When you sell said product or service, you need to be be compensated for both. For example, if you’re sewing clothing, not only do you need to be reimbursed for the materials you’ve purchased, but also for the time you spent creating the item.

And then there are other not so obvious costs, like the electricity that powers your office, hardware such as computers and software, sewing machines and paint brushes. You’ve also got marketing and advertising costs, as well as other hidden costs that go into running a business.

You’ll need to take all this into consideration and then compare your findings with what you’re currently charging.

One of my coaching clients sold a 10 hour service package to a client — and later realized that she’d barely make a profit on the package if she did the work herself, and lose money if she outsourced the project.

After listening to her, I realized she’d failed to take into consideration costs such as time spent emailing with the client, the actual time it took her to complete the project, as opposed to the ideal amount of time, and outsourcing the parts of the task that she is not efficient at completing.

You may find yourself in a similar situation once you sit down and do the math.

Survey your customers

Once you have an idea of how much you may need to raise your prices, I recommend you survey your existing clients. You can email them a written survey, or just talk to them on the phone. Find out how they feel about your existing pricing structure.

That said you also need to evaluate your customers themselves. If you’ve marketed yourself as the cheapest shop in town, chances are, your customers are all going to want your prices to go down, not up.

Research your target market

Just a side-note here: If your customers are all cheapskates,  you’re going to need to re-evaluate your marketing strategy as well and start targeting those people who want quality, not cheap. That means finding those people who want and need your services or products and who are willing to pay for them. This calls for target market research, which you can read about here.

So, find those clients who are ideal, the ones you value your expertise and what you provide. Ask them about your pricing structure. Chances are, if you’re pricing is too low, they’ll be the ones who’ll know that they’re getting a steal.

Research your competition

If you’ve already looked at your competition, that’s great! But before you pat yourself on the back and move along, let’s take a look at your research.

Are you comparing apples to apples, or apples to oranges?

A client of mine recently showed me a potential competitor who is charging exponentially more than my client is for her services. My client was a little flabbergasted at this, and could not imagine who could be paying the competitor so much.

Therein lies the rub.

First, is anyone really paying that competitor? I can put on my website that I charge $1 million for a website, but is anyone going to really pay that? (For the record, several years ago, I read an article written by a man who was a member of an early internet startup — before the dot com bust of the 90s. Back then, his company was charging that much money to build and maintain websites. He left the company and started his own business charging much less — but still making plenty of money.) Anyway…

Second, are your markets the same? If you’re targeting work at home moms, you’re not going to be able to charge as much as the service provider who is targeting Fortune 500 corporations.

So make sure the competitors you’re researching are actual competitors.

Finally…

Once you’ve completed your evaluation process, take a break. I’m taking the weekend off to relax with  my family. You should too. Well start again next week taking a closer look at those hidden costs. Then you can make some final adjustments to your proposed price hike…

Smarter Pricing Strategies: Raising Your Prices

I know. We’re still struggling with a depressed economy, high unemployment and increasing prices for necessities.

It doesn’t seem like a really good time to talk about how to raise the prices we charge our clients, many of whom are struggling just like we are.

That said, it’s a fact of life that in order to survive, small business owners must often raise, their prices.

How The Big Guys Raise Their Prices

Corporations simply raise the price and you notice it the next time you pull up to the gas station and it’s $3.46 per gallon instead of $3.36. Sometimes companies reduce the amount of product in the package while charging the same price — and hide it in a new eco-friendly package or as reduced calorie portions.

As a small business owner though, you’ve most likely built your reputation on a more personal level. Your clients expect more communication and consideration from you. But that doesn’t mean you’re locked into your current pricing.

One of my coaching client has been struggling with this issue for several months. She is feeling stuck in her business. She wants to earn more, but is leery of asking her clients for more money. She is afraid that they’re going to bail. She’s also insecure about the value her services are adding to her clients lives, but that’s another post…

As a small business owner myself, I’ve tried different ways of increasing prices, and I’d like to share with you and my client what I learned so you can grow your business through smarter pricing strategies.

Create a pricing strategy

That sounds like a no-brainer, right? For a seasoned business owner, or an MBA, this might be the case. But often small business owners, who may have started their business to earn money from a creative hobby or to share a much-needed product or service with the world, fear might get in the way.

If you’re like me, you started out with a rather vague concept of “I want to earn money doing something I love. What can I do to make this happen?” In my case, designing websites and providing hosting services was the answer. In the early days, I just came up with a relatively arbitrary number to give prospective clients. If they balked, I took that as a sign I should lower my prices. I was afraid that someone would tell me I wasn’t worth what I wanted to charge.

As I gained experience and began researching the competition, I started noticing trends in my niche of the industry. So I started making pricing guides for myself, based on a slightly higher price than my competitors for my design services, and a slightly lower price than competitors for my hosting services. Again, I was still afraid of what clients and prospects would say.

This seemed like a good idea at the time — and was much better than grasping at straws. But this strategy left me with no comfortable recourse for adjusting my prices, or any real way of knowing if I needed to, based on my own business. And there was still that fear.

But then I realized that setting your pricing doesn’t have to be emotional and you don’t have to be afraid. You simply have to behave like a professional. And professionals plan their pricing strategies ahead of time.

According to Freelance Switch:

A pricing strategy is basically a well-thought out plan for how you decide on the fees you charge for the range of products and services you offer. It’s not simply a ‘finger in the air’ guesstimate of how much you fancy charging from one month to the next but a coherent calculation based on a logical structure for your pricing.

Instead of panicking every few months when you’re stressed out over a lack of adequate income or your time being stretched thin, try this:

1. Evaluate your existing pricing structure: per hour, per project, etc.
2. Determine how much you need to raise your rates in order to cover your obvious and hidden costs.
3. Restructure any packages you offer to compensate for costs you didn’t factor in initially.
4. Notify your clients ahead of time.
5. Work on your perceived value.
6. Keep it positive.

Once you have your strategy in place, you can communicate ahead of time with your clients and make incremental pricing adjustments over time. While some clients may seek out cheaper alternatives, you’ll be able to replace them with higher paying clients who are looking for the quality you provide.

Tomorrow, we’ll talk about evaluating your existing pricing structure…

I Can’t Pass Up This Opportunity!

If you’ve been in business for very long, you’ve probably received one of those opportunities that you can’t resist. But maybe you should…

• I’m not talking about offers to send money to Nigeria and get millions back. Ha!
• I’m not talking about the latest, greatest software that’s going to allow you to sit on a beach while your business runs itself. As if!
• And I’m not talking about some super-secret program that’s going to make money spit out of your computer.

I think you get the point.

I AM talking about a legitimate offer — a really good deal, even — like an opportunity to be a faculty member at an online educational site, like one of my consulting clients received. Or maybe an offer to write for a well-known blog, like I’ve received in the past.

Why say no?

These offers always sound so good. You’ve been asked to write for a blog with thousands of readers. This could put your business in front of a whole new market full of people who need your products or services.

But before you accept an offer, you need to ask yourself some questions.

• Do I have enough hours in the day?
• Do I need the clients that “might” come my way?
• Is this going to be one more thing to add to my list when I’m already behind sometimes?

Why say yes?

The offer is very much a stroke to your ego. It IS a great opportunity to get yourself out there. And perhaps you’ll have the opportunity to work with someone you’ve long admired in your industry.

Those are great reasons to say yes to an offer.

But again, you need to ask yourself some questions first.

• Do I have a team or process in place to handle any extra work that comes my way — and maybe even some of my existing work.
• Is my business healthy and able to run with my focus somewhat divided?
• Do I have a clear vision for the future of my business and does this offer fit within that vision?

Before you take a flying leap off the diving board into a wonderful opportunity, make sure it really will be wonderful for you and your business.

Hae you received an irresistible opportunity? Did you accept it and how did it work out for you?

 

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How To Move Customers Into Action

There’s a general cycle to internet business, a series of phases. The first phase is generally to drive traffic, increase awareness and build your subscriber or opt-in list. The second phase is to motivate subscribers to become customers. This is generally accomplished by offering entry level products like low cost reports and ebooks.

However, once you have customers, how do you continue to increase sales and motivate purchases? What’s the next step?

Motivating customers into action involves a few different strategies working cohesively together. The first is to continue to offer quality information. You want to continue to give them a reason to come back to your website. And you want them to think of you often, particularly when they have a need for your information, products or services. This is accomplished by continuing to reach them through your autoresponder, social networking, blog posts and other marketing strategies.

Continue building your community. The more people feel like they belong and they can relate to your brand and personality, the more they are likely to become repeat customers. And they’re more likely to recommend you to others. Social networking, blogging and social networking badges and buttons on your website are excellent ways to accomplish this.

Reward your customers for their loyalty. Loyalty programs help accomplish a few things. They make customers feel appreciated. They motivate purchases because loyalty programs and rewards often come with privileged promotions, special pricing and exclusive information. And they help build your community.

Build a marketing funnel. It makes sense to have a tiered level of products or services in your catalog. If your first entry point cost $5 you don’t want your next product to cost $500. There has to be a mid range too. And like wise, some people may be ready, after buying your first entry level product, to buy the whole cow as they say. So make sure you have larger priced items available too.

Tap into those all important buying triggers. Your customers will respond to:

• Emotion
• Scarcity
• Urgency
• Authority
• Credibility
• Liking

Embrace these buying triggers and use them in your communications and promotions.

Finally, make sure it’s easy to buy. Sometimes we don’t realize that there are artificial blocks to making a purchase. Maybe we ask for too much information during the checkout process, maybe the call to action isn’t clear. Eliminate any obstacles to making a purchase and make it extremely easy to buy from you.

Turning customers into repeat customers and motivating sales is an ongoing process. However, once you create good systems and procedures here, it can essentially be an automatic and repeatable process.

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