Pricing your product or service just right is an art. The keyword to focus on is honestly. Because we’d all love to think customers will pay based on all the hard work and dedication we’ve put into our products and services.
All the blood, sweat, and tears over the years to gain the skills necessary to turn an idea into something real. But they probably won’t, will they? “How much to charge” is a tough question to answer sometimes.
- 1 First, clear the “hard work” illusion.
- 2 What does your idea do for customers?
- 3 Pinpoint money and time savings.
- 4 Calculate what that is worth to them.
- 5 Calculate your own costs.
- 6 Use these values to create a price range.
- 7 Pick the price you’d pay if you were your client.
- 8 It’s not set in stone.
Why you should read this guide.
If you’re an entrepreneur bringing your idea to the world soon and are struggling to set your prices just right, this guide can help you decide on a good, honest price your customers would be happy to pay.
First, clear the “hard work” illusion.
Imagine Netflix for a second. They have hundreds of staff (maybe more). The service requires an insane amount of server and network resources to stream to millions of customers globally. Not to mention licensing, production, filming, and more.
There are reports Netflix spent over $17 billion in 2020 for new content alone. That’s not even counting all the other operating expenses.
If Netflix asked you to pay $199 a month — would you pay it? It’s clearly still a great deal. Considering you can stream as much as you want from an extensive library of movies and TV shows.
But $199/mo sure seems like quite a lot of money for a consumer. Chances are, not many would pay that. So Netflix has to shoot for lower prices across more customers.
But some businesses can charge more than that. Perhaps you can too. Let’s go through a few steps to help you discover what would be a good price to charge your customers.
What does your idea do for customers?
The first step in finding how much you can charge is to identify what exactly your idea does for your customers. This is where you need to dig deep into your idea. Make a list of everything that your idea will do for your customers.
Leave no stone unturned. Even the tiniest of benefits should be listed. Right now, you’re just in the discovery phase to make sure that you know of everything possible that is a benefit to your customer.
Because over the next few steps, you’re going to use this data to develop a rough idea of what you will charge or your rates.
Besides, knowing exactly what your idea will do for them will be great for customer service, marketing, and more as you move forward with your idea.
🚀 Got a second? Because I’m curious — as someone interested in pricing your product, what would you search for in Google to learn about it?
Pinpoint money and time savings.
Now that you have everything listed, it’s time to go through the list and find the benefits that save time and money for your customer.
These are the obvious benefits that make it easy to find how much you can charge.
If your service saves them time because you’re doing some work for them, that’s an easy win. But also think about the ways that you might save them money.
For example, if you’re a content writing service, you could save several hours per article you wrote for your customer. That is time-saving. But also, that customer might’ve had to hire a writer or outsource it to someone else — that’s the money savings.
When I say save money, I don’t mean in the time-saving sense. That old saying “time is money” is true, but when calculating what you’ll save for your customer, split time saving and money-saving into two categories.
This will help you calculate what it’s worth to them, which is the next step.
Calculate what that is worth to them.
Now we need to find out what all the time savings and money savings are worth to them. First, add up all the time savings and all the money savings separately.
Once the money savings are added up, it’s essentially done; put that aside, and I will concentrate on time-savings and calculating the benefit for your customer.
Here you may need to get creative. What is one hour worth to your customer? This is going to depend on your industry and the customers that you are seeking to serve.
Empathy is important.
Use a little empathy and put yourself in their shoes. Ask yourself what their values are, the tools they may use, the resources they need, and their expectations with their business day in and day out.
If you can interview them, question their operations to find places where your service complements them the best. You’re looking for that synergistic effect. That place where your service fits in so well they’ll pay any price because you can boost their business.
Get outside perspectives.
Ask a friend too. Someone outside of you and those you seek to help. Sometimes an outsider’s view can factor in a question or other ideas you didn’t think of. We often think of customer satisfaction or customer feedback as the only sources of inspiration.
On that note, your family could have a part too. They may be a bit too connected to you but could act as an outsider view too. Their expectations of what makes a happy customer are probably different from yours, a valuable resource.
Once you know exactly how you can bring fantastic services to your customer and how much money and time savings you bring, it’s time to calculate what things cost for you.
Calculate your own costs.
Of course, this depends on your industry, but you’ll need to spend some time looking through your operating expenses. Notice I did not say your research and development time.
While it would be great to charge for all the time it took you to produce your idea; chances are you won’t be able to. It would be best if you planned to recover those expenses over a longer-term.
If you’re running an online business, you need to think about hosting, bandwidth, CRM’s, email providers, web or graphic design, video production, podcast creation, etc.
Essentially everything that goes into you operating your business to provide your service to your customers. Once you know that number, it’s time to move on and calculate your price range.
Use these values to create a price range.
Now for the part you’ve been waiting for. It’s time to figure out a price range that you can pick a price from.
First, the price and time savings calculation you came up with for your customer. What is that value? Please write it down. Now think about how often you can provide these savings to your customer.
Is it a monthly saving? Annual savings? Or is it a one-time saving? Is your service something that can be a recurring charge?
Based on the amount of savings, and the timeframe, pick a value you feel he’s a little bit on the high end, but a customer might pay.
Then for the low-end of your pricing, think about your operating costs. There’s always going to be a certain amount you have to make; otherwise, you’re only losing money. That’s your low price.
This should give you a range from low to high, with high being what you think a customer would pay if they really understood how much your idea helps them.
Think of it like this, if they give you $100 and your work provides them $200 of value, they’re going to pay $100, no question. At that point, it’s all a mindset game.
Pick the price you’d pay if you were your client.
Here’s where you try and put yourself in their shoes again. If you were the customer and your idea was being pitched to you, how much would you pay for it?
It would probably depend on how well you understood the idea would benefit your business, right?
This is where the mindset game begins. You want to charge as much as you possibly can for your idea, but businesses want to spend as little as possible to keep operating costs low.
You need to do whatever it takes to convince them of the tangible benefits they will see by paying for your product. It’s not enough to say time-saving more money-saving; dig in and show them exactly how it will boost their business. How will you turn their $100 into $200?
This is how you will convince businesses to pay what you need them to pay for your own business to succeed. The perfect price will draw attention, sell itself, and help you scale your business.
Think of a time when you saw the price of something and thought, “Wow! That’s a great deal!” and then purchased immediately. That’s the conversation you want happening in your potential customer’s mind.
Can you pick a profitable price for you and at the same time influence potential customers to purchase immediately? That’s your price or one of your rates.
It’s not set in stone.
Remember, just because you set the price now doesn’t mean that’s the price forever. You can change it. It’s your idea, your service… you can do what you want with it.
But before you make changes, always think about it from the other side too. What if Netflix suddenly said you’ll have to pay $199/mo instead of the ~$11.99? That would be quite a shock, wouldn’t it?
Don’t do that to your customers.
But maybe you could reward early adopters by locking them in at the price they joined at. When you need to raise your prices, they feel they were lucky to get in, get a better value, and there’s a little bit of lock-in. They won’t want to leave and lose the lower price they pay now.
I know picking prices can be a challenge. Hopefully, this guide helped make that at least a little bit easier. Good luck!