Price point. What to charge. Every entrepreneur has experienced a moment of agonizing indecision as they hover over numbers with dollar signs attached.
All business owners think carefully about what they charge. Should you end your figure with a seven or a five? Go top shelf or bargain basement? Have half the customers at double the price or double the customers at half the price?
Pricing is crucial. In fact, what you charge will make or break your business. Higher prices simply work better. Here’s seven psychological reasons why…
1. Higher prices increase customer focus
When you charge more, your customers pay more attention. Trust me – I’m a therapist. I’ve often joked that a Quit Smoking therapist need only charge $7500 a session to guarantee success. When a customer is forking over serious cash for advice, they’re going to listen carefully and act on it. This is known as “Client Compliance” – their fear of wasting money becomes your greatest asset.
Focus isn’t only important for consultants. It matters for physical products too.
I never cleaned the toaster that I inherited from the eighties. Until it broke. Then I bought a space age toasting rocket (with glowing blue lights). It now gets cleaned out at least four times a year. Can you imagine the impact of this on the manufacturer’s guarantee policy?
My old toaster caught fire when the build up of years of crumb-strata finally reached critical mass and short circuited the elements.
Because I spent big money on the replacement, I care for it better.
The same is true for my old cellphones (which I broke every ski season, like clockwork) versus iPhones. My old iPhone 3G is still as good as new – without too many scratches. Why? Because it cost three times as much as any other phone I’ve owned. I once put it in a ziplock bag (snow proof) with a hand warmer (freeze proof) while skiing.
How do you want your customers to treat your product?
It doesn’t matter if you’re selling a service, product or information. Upping your rates creates instant customer-concentration.
2. Big transactions will ignite your motivation
When you’re selling a big ticket item, you’re going to get fired up. When the unconscious mind knows that a single sale could have you in caviar and cigars for months, it flips the motivation switch.
Want to see real world evidence of this? Go compare the attitudes of the sales people at the 2nd-hand Hyundai caryard to the guys selling custom Ferraris.
I deal with astronomically priced corporate contracts and nothing motivates me like the sensation of approaching the close. I might only get a few a year, but the motivation is still miles beyond what it would be if I was, hypothetically, selling $99 widgets door to door.
You know it’s all in your head when you figure out that selling $99 widgets, three a day consistently for a year, is actually a six figure revenue stream. Same end result, but it sounds like a nightmare – not motivating at all!
Pumping up your rates injects the razzle-dazzle back into your deals. Pursuit of a close is invigorating, because the stakes are high.
Increase your rates and give your unconscious mind something to salivate over.
3. Being expensive cultivates an aura of expert and elite status
Want to be known as the Walmart of your vertical? The bargain basement of your industry?
I didn’t think so.
When you have high prices, something magical happens. People assume you’re the bees-knees. You start to become known as the place to go for top-end, elite and awesome <insert product here>.
The thing is, if you’re offering top-end, elite awesomeness and doing so at insanely cheap prices… it won’t matter. You’ll never get the reputation you deserve.
Unless you’re a rev-head, you’ve probably never heard of the Nissan R34 Skyline GTR. It’s a mass produced, low cost rocket ship that can lick a Ferrari 360 Spider around any track. Guaranteed. However, the car retails for less than a quarter of the price of the Ferrari.
That’s why you’ve never heard of it.
When you gain the expert/elite aura, selling becomes infinitely easier. Doors will open, important people will shake your hand. Party invitations will appear. Media mentions will drop from the heavens.
Most importantly, people will start hiring you simply because they can tell you’re the best.
It’s your rates that tell us this.
4. You’ll make more money by doing less (aka “margin is everything”)
I’ll never forget my dad telling me the tale of his photo lab pal. Dad was an avid photographer, back when you had to shell out for development of every picture. I think it was called “Film” or something.
Anyway, he always chuckled about his buddy who owned a photo lab business. One day, his friend spontaneously doubled his rates. The customers were furious.
Fifty percent of them vowed to never return. The other fifty percent shrugged, realized they had been getting photos too cheap for a while… and swallowed the increase.
Overnight, he had cut his workload in half. His revenue was the same but he was making more money because he only required half the inventory. His overheads pretty much halved!
The fact that he then spent the extra profit (and time!) tarting up the shop to attract new, wealthier customers transitions nicely to my next point…
5. Big figures attract big spenders (your customer demographics will get exciting)
There are a certain group of people who will pay more for the little extras. These people will intuitively gravitate towards good customer service, style and speed. In other words, they want the best and they want it now.
This demographic will pay a premium for “top-shelf”, quite happily, knowing that they’re getting what they want. We all sometimes fit into this group. Sometimes we don’t.
I’ll spend double on lunch to make sure I avoid starchy carbohydrates. I’ll also pay more for a haircut where I’m less in danger of losing an ear. I’m a lousy sock customer though – I wear $1 socks inside $500 shoes. Sock merchants? Do not call here.
Why design a business that caters to bargain hunters? These people have no loyalty – they’ll ditch you for a cheaper competitor faster than you can say “Fire Sale”.
Increase your price and you’ll attract people with money to spare, who value what you do.
6. As prices go up, customer issues and complaints go down
I mentioned physical care of iphones and toasters, but that’s only half the story. Higher prices increase customer commitment.
When I started my therapy practice, I was charging $50 an hour. I had to deal with endless rescheduling of sessions (effectively wasting my time and increasing my overheads). When the clients did turn up, I struggled to get them to pay. I had to become a hardened debt collector, which made me miserable.
These days, my minimum per hour face-to-face rates are $450. My client’s never forget to turn up for sessions and I always get paid in advance. Almost all my email clients renew their per-month retainer fees without me even asking!
The more you charge, the less debt collecting, refunds and general hassles you’ll have to deal with. The customers who make the decision to shell out for your pricier product will take it upon themselves to be better educated about what you offer. They’ll be more decisive, more committed and offer fewer objections.
Would you pay to resolve complaints and hassles? Have you ever hired a debt collector?
If you simply charge more, you’ll get the same (or better!) outcome and you’ll make more money. This is a no-brainer.
7. Big rates motivate you to over-deliver (and customers will thank you for it)
This is really the psychological coup-de-grace. The final evidence that increasing your rates is a must.
When you start charging more, you’ll quickly figure out that you need to deliver more.
Just like the photo lab guy, you’ll start decorating better. You’ll add little extras. You’ll go the extra mile. Presentation will become important. So will speed.
Do you think your clients will notice? Hell yes! They’ll love it.
Increasing your rates overnight will make you sweat with the need to be more awesome. You’ll be petrified that you’re not “worth it” – that you’re somehow not awesome enough to have big prices. This fear is a good thing.
Being awesome is the only secret to business success.
Pumping up price is the psychological permission you need to innovate your product like crazy. Your fear of inadequacy is real. Innovation will allow you to transcend that fear. Innovation will revolutionize your business and dazzle your customers.
Then, they’ll talk about it. Word of mouth will take off and you’ll magically attract more customers than your old, piddly rates would ever have allowed.
Transform your business today. Double your rates and double your success.
Why haven’t you done anything else with the rates? What would you do with the extra profit? Let’s discuss…