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Pricing Predicament

Written by: Alvah Parker

Article Overview: How can I figure out how much to charge for my product or service? What is the highest salary (raise) I can ask for? Talking about money is a thorny issue. What do you need to think about when you set the price for your service?

Pricing Predicament

How can I figure out how much to charge for my product or service? What is the highest salary (raise) I can ask for? Talking about money is a thorny issue. Everyone has opinions about it but those underlying concerns are:

Did I set the price so high that no one will buy? (Is the salary I asked for so outrageous that they will hire someone else)
Did I give them such a low price that they question my value or did I leave money on the table? (Is the salary I asked for so low that they wonder if I know what is going on in my field?)


This month I had three different experiences that involved pricing.

First my mother showed me a pair of shoes that she got through Medicare. (She is a diabetic and evidently Medicare will pay for one pair of shoes a year.) She told me she would never order them again. Why? Because the doctor charged Medicare $500 for the shoes and she thought that was far too much money. (She watches the government’s money like her own!)

Next a friend told me most of her colleagues were telling her to charge more for her services. She was adamant in her stance that no one was worth what they were telling her to charge. In fact her colleagues were in the same business and commanding the fee they were recommending to her.

Finally in the news once again one of the presidents of a large company here in the US (Exxon) was reported to have negotiated a huge retirement package.

Finding an appropriate price is not easy. There is a lot of psychology in pricing along with some mathematical computation. Sometimes people forget to think about the mathematical piece. The cost of delivering the product or service including the time of the deliverer is important. If you do compute your actual costs you can then add a percentage on top (margin) to give you your profit.

Seems simple but now you’ll need to see what others are providing. How does your product compare with those it competes with? This is the market research part of pricing. If you are negotiating salary for a job, you’ll want to know what others who do similar work get for that job.

Now here is where the psychological factors come in. Price something way above what the competitors charge and you could price yourself out of business – maybe or maybe not. Perhaps your product is like no other that it competes with. In my mother’s case maybe there is only one manufacturer of shoes for diabetics and each pair must be made individually to that person’s specifications? The price may in fact be justified.

Price something way below what the competitor’s charge and it is possible you will be very busy. If you haven’t done the cost analysis, you may find yourself losing money though. Another possibility is that potential customers may question your value. “Why are you so cheap?”

Justification – that is what is necessary. In your sales pitch you will need to tell the potential buyer what makes your product so special. (Why you do charge so much or so little.) If my friend doesn’t really believe that she is worth more than she’ll have a hard time convincing others that she is. Clearly Presidents of large corporations have no problem with their sales pitch and are really good at convincing boards of directors to pay them huge sums.

“Whatever the market will bear” is often the philosophy you hear. It certainly must be the justification of the presidents and CEOs who get big salaries, bonuses and pensions. In my opinion the answer lies somewhere between my friend who doesn’t think she is worth that much and the big company pay outs. That is a place where the business owner gets what he/she is worth and the consumer gets the value he/she expects. For me there is also integrity involved in pricing not just what the market will bear.

Take Action

1. Assess your own work situation. Where are you undervaluing yourself? Write down a list of the benefits you offer to your customer (employer).
2. Check your competitors. What do they offer? How do they price their offer? Compare their offer to yours. How are they alike? What is unique about your offer? How do you tell your customers about that uniqueness?
3. Not unique? Why would your customers choose you instead of your competitors? If your uniqueness is price alone, you are on a slippery slope because there are always others ready to price below you.

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Article Tags: how to price product or service, predicament, salary, talking about money, thorny issue



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Re: need pricing help please - [quote="lovesangel":32mmx3yi]Where would courses fall into this pricing mix? Either/and online, downloadable, or the hardcopy kind you can order and hold in your hands?[/quote:32mmx3yi] Nancy, could you define "courses" with as much detail as you can? I ask because every person reading this post has a different "picture" in their minds of what a "course" is. For me a "Course" can fit in any of the delivery methods I disclosed in the Pricing Ladder. That is.. it can be an ebook, autoresponder sequence, teleseminar or webinar (recorded or live over the phone/internet), a workshop (live-in-person-face-to-face) or a one-on-one session. So let us know how you are defining "courses". thanks
Happy Worker as of Dec 31 2007 - Here's mine... I'm now off to make an offering to the business planning gods for their help in getting to these goals & beyond. To the combined success of Prophets 2 Profits! ----------------------------------------- 1) Corporate a) Retail - Sales reps covering all major markets (1M or more) - Retail product launch plan - 1 more retail release (TBD) b) The Toy Agency - Systems for: o Creative process o Pricing o Manufacturing o Logistics - Marketing agency strategy in place - 1 new customer every 2nd month (5 new customers); 1 of which will be rev of >= 500K/year c) Business - Creative talent pool management strategy & process - Outsourced and/or weekly bookkeeping - Monthly budgeting & forecasting - Better banking organization (Line of Credit, CCs, automate billing for appropriate vendors) - Team total of 5 - Larger office d) Web site - Daily updates - Start of separation of Blog/TTA/Retail 2) Personal - Most weekends “off”! - Entirely separate personal finances; basic personal financing plan - Family….?
Pitch Like A Girl: How a Woman Can Be Herself and Still Succ - Pitch Like A Girl: How a Woman Can Be Herself and Still Succeed Ronna Lichtenberg 2005 From the inside cover: "As a woman, you probably feel uncomfortable when it comes to promoting yourself and asking for what you want." WHAT IN THE HECK IS THIS, I asked myself when I read that. Women are the fastest growing business owners in the US and Canada, there are t housands of women executives and CEOs - though not as many as might be expected, admittedly, yet the book opens with this surely out of date stereotype. However, as she continued to give examples of women who had high paying jobs but were routinely not paid as much as men because it hadn't occurred to them to ask for raises, etc., I decided it was probably true for a majority of businesswomen... Anyway, more of the info from the jacket: "Other books have told you how to get what you want by being more like a guy. Pitch Like A Girl tells you why its an advantage to be who you are and how to do better by bringing more of yourself to work." The TOC: 1. Pink and Blue 2. The Quck-dry Chapter 3. What's In your head that's not in his 4. The Me, Inc Mindset 5. Visioning: Discover What You Really Want 6. Identifying Prospects 7. Pre-pitch homework and heartwork 8. Crafting the pitch 9. Pricing the pitch 10. Packaging the pitch 11. Delivering the pitch 12. Closing Conclusion A Word to the guys The Empathy Quotient The Systemizing Quotient Bibliography And on a side note - non-fiction books without indexes - of which this is one, annoy me.
Why women don't charge more - I just read a chapter in Pitch Like A Girl: How a Woman Can Be Herself and Still Succeed, by Ronna Lichtenberg that deals with this. THe chapter is called Pricing the Pitch. "In a WAll Street Journal article about what might be holding women back from corporate success, Terry Dal, a former vice president at Wells Fargo bank, said, "Good girls don't advertise; only prostitutes advertise. We feel dirty promoting ourselves." The author's advice: The first step in getting the money you desserve is to understand the market rate for your offering. Not what you think you need, not what they're willing to pay, but the going rate for similar goods and services offered in your area by someone with your skills and experience. Then, seek expert advice. "Men routinely consult lawyers, financial advisers, exxecutive recruiters and any other paid counselors to help them assess what constitutes a fair fee." Your research into going rates should not lead you to a single price for your pitch but rather a range of prices - both a market range and a personal range, which should overlap but won't necessarily be identical. In pricing, one size does not fit all. The final step in determining your price is to consider what you think you'd be paid for the same job if you were a man. The author also discusses why women usually discount their prices (must'n't appear too over-confident), the difference between discounting and "giving a discount", and other issues. I'd advise every woman wondering about what to charge to read at least this chapter of the book.


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