Does your Price Match Your Worth?
Posted by Chad BordeauxThursday, March 4th, 2010
I just read a great post over on Chris Brogan’s blog that discussed Price Points. Apparently, quite a few of his other readers were shocked to find what he charges for a day of his time – $22,000. Chris went on to give some direction at how he sets him pricing. Chris doesn’t want hundreds of people signing up for a day of his time. He wants two to three each month.
It all goes back to value. When you are setting the value of your services or products, what is it worth? Chris is a well known business strategist, but lets look at this same scenario in a typical small business – for instance a contractor who does home remodeling services.
Let’s look at two scenarios. Jim Contractor has ten different jobs working at the current moment. In order to win the bids on the jobs, he had to be the low bigger. His expected profits was cut to the bone and he has to work around the clock to get them done on time – and if his budget is off – he will likely lose money on a few of the jobs?
Bob Contractor has only three jobs in process right now. When he bid the jobs, he priced the jobs so that he could make a nice wage once the jobs were completed. His prices were more expensive than Jim’s and he had a higher profit margin. Bob has time to excel in not just the quality of his work, but also in building a relationship with his customers. He is able to give them comfort that the job is being done right – providing that extra little bit of value in the eyes of his customers. He also does not have to worry as much about making an error figuring up his job cost – if he is off a little bit, he isn’t as likely to go into the hole.
Who would you rather be – Jim or Bob?
There are thousands of Jim’s out there – fighting for that customer who is always looking to pay the cheapest price. He is always struggling to win bids and a typical dinner time conversation is how he keeps getting underbid by his competitors – ultimately resulting in him lowering his prices even more. Jim is selling a commodity.
There are only a handful of Bob’s. Bob creates value for his customers. I suggest you strive to become Bob.
Chad is a Charlotte CPA who works with small business owners and invidiuals on a monthly basis to provide them with proactive guidance and advice on how to grow their business, minimize their tax liabilities and grow their bottom line. You can find our more about Chad by visiting his profile here: Chad BordeauxTags: price strategies, pricing
March 8th, 2010 at 9:04 am
Thanks for the great insight, and for pointing me to that interesting post!
March 8th, 2010 at 6:54 pm
Great post!
I am certain that many new entrepreneurs, make the same value mistake you have pointed out by thinking they should offer great discounts to begin with, and thus establish themselves as a discounter!
How many business go under the first year? We always hear about 2/3rds of all restaurants, but what about all the other businesses?
Then they bootstrap, cutting all their important investments in the business like advertising, and great customer service, because they are simply always trying to catch up to make end meet.