Let’s get one thing out of the way: there is more than enough money out there for you, and you are more than enough to make great money.
I start by saying this because often the one thing holding a great disruptive entrepreneur back is a lack of self-worth. If you don’t value yourself, your prices are likely to be too low. On the opposite side of the coin, if your prices are too high, your sales will drop. Like anything else, if you want to succeed in life and in business it’s about finding a balance.
Let’s first talk about a pricing model you can use to define your value and fair exchange.
Split price testing – start low, end high
This is a simple but spectacularly effective price strategy: start prices low and increase profit margins as customers buy your more high-end products and their trust in you increases.
My business partner Mark Homer and I run property investment courses and education. Our products run from single-day programmes for high numbers of investors wishing to learn more and progress in their field, to highly exclusive packages for smaller numbers of investors wishing to galvanise, invigorate and bulletproof their business plans and find success in business while under our mentorship. One of our products is the Masterclass Course, and the next step up from this is our Mastermind Course.
First, imagine having 50 disruptive entrepreneurs paying £1,995 plus VAT to attend the Masterclass Course, at a 10% profit. Then from those 50 people, 10 go on to attend the Mastermind Course that £5,995 plus VAT at a 25% profit. This setup offers a 2-stage lifetime client value revenue of £159,700, and a 2-stage lifetime client value profit of £24,737.50.
Now suppose that instead, 25 disruptive entrepreneurs pay £2,995 to attend the first course, making nearly £75,000 at a 25% profit margin. From those 25 people at the same conversion rate, 5 go on to the Mastermind Course at £5,995 plus VAT, which is virtually £30,000 at a 25% profit margin. With the higher price for the initial course, this second setup offers a £104,850 2-stage lifetime client value revenue, and a £22,458 2-stage lifetime client value profit.
In these two split tests, split test number 1 shows that pricing the initial course lower pays greater dividends in the long run, because it increases the overall profit by £2,500. Following this more successful business model, you will want to be looking at reducing prices at the start, but introducing more products further down the line that will garner you with greater profits.
Boost value as you increase price
There are many reasons that even disruptive entrepreneurs who are already successful in business fear increasing prices. The most common of these are a lack of self-belief, a fear of losing customers, or concerns that you will receive complaints following the hike.
It should go without saying that you should aim to offer and deliver a great service to your clients, but what I encourage you to do right now is increase your prices between 5% and 20%. A 10% rise in any price is generally considered acceptable by most clients, and if you overstep the mark and become greedy, the market and your customers will let you know. Quite often the customers that you lose after a price raise are those looking for budget prices, while those you gain are clients happy to pay premium money for premium services. The perceived value of a product is often tied just as closely to the price tag as it is to the service or product being offered.
If you remain sceptical about raising your prices, there are some additional features you can add or simple changes you can make to your product and the way it is packaged:
- Most obviously, provide a better service, giving more value first before raising your prices. If you offer 10% more value and 2-5% higher costs initially, you can easily increase costs by 10% with little fallout.
- Increase the speed or efficiency of your product’s delivery. People will always pay good money to reduce or relieve pain.
- Offer benefits that are perceived to have great value, yet have little to no extra overhead costs to you as the service/product provider. Value is perceived rather than a concrete fact.
- Repackage what you already have. Packaging is often the key to suggesting the image of either a higher or lower value for a product.
- Move the “free line”. If you give more value upfront and without cost or pain to the client, you immediately begin building trust and increase the likelihood of them purchasing your products or services.
Remember: prices reflect clients 1st, products 2nd
Above all things, remember that your fees attract the type of client with that kind of income and repel the rest; low fees repel higher-paying clients, while high fees repel lower-paying clients. When it comes to raising prices, higher fees are often great pre-qualifiers, repelling time wasters and window shoppers and hastening your route towards success in your chosen business. Higher prices attract customers who can afford the prices you are asking for, value your service more highly, and who are more discerning and knowledgeable.
As I said at the start of this, a lack of self-worth and a low belief in your product or service hold many a fine disruptive entrepreneur back.
There is enough money.
There is the right niche for your product.
And you are already more than enough.
I would love to hear about how your equate your prices with your services, how often you raise your prices, and how you found your price ceilings. Comment below, or connect with me and copy me into your comments on Facebook.