Do you charge enough for your products and services?
Do you charge for your products by adding a profit margin on top of how much the product cost to produce? Do you charge for your services based on time – hourly rate, daily rate?
In my last post, I talked about how to accurately calculate the right profit margin after costs. Many business owners get this calculation wrong and inadvertently reduce their profit margin so it’s worth a read.
But is this the right way to set your prices or are you under selling what you offer?
Instead of calculating price against cost or against time you should price what you offer against the value you deliver…against the difference you make.
How much is what you offer really worth to your customer or client?
What difference does it make to their life, their business their whatever it is you help make easier, more effective, more efficient, quicker, cheaper, more satisfying, more something?
Put yourself in your prospects’ shoes and think about this difference that you can make. To get the full impact that you could have, the big difference that you can make, think about this from two angles.
- The positive difference you can make should be quite clear and clear to your prospects. These are the more obvious benefits of what you offer and the difference you can make.
- The negative difference is about the difference that you, and what you offer, can potentially avoid. What could life be like if they didn’t use your offering?
The first angle builds a clear positive benefit gap between what a prospect can do or achieve now compared with what they could potentially do or achieve if they invested in your offering.
The second angle builds a less clear but no less important gap between where they are now and potential negative difficulties they could face if they didn’t invest in your offering.
For example, if you offer a manufacturing company a tool that measures and cuts metal more precisely and faster than what they currently use, then there are obvious benefits to that. The less obvious benefits are related to future potential difficulties if your prospect didn’t invest in your tool such as a ceiling on how many customers they can service or volumes they can handle by staying with their current tool and hence the potential impact on the future growth of their business.
Or maybe you offer training that will not only increase the efficacy of what your client’s staff do but also reduces mistakes and the cost and, in some industries, potential legal ramifications in making those mistakes. In this last example, the care industry springs to mind.
Or you could provide expertise that will help a business differentiate and grow faster than they would if they tried to figure out how to themselves. The clear positive benefit is the increased business and revenue and profit and the not-so clear benefits include the avoidance of costly set-backs which wouldn’t have happened if the expert guidance had been followed.
When you highlight the positive benefits, you build a perceived ‘value gap’ between where your prospects are now and where they want to be. By including benefits that avoid the potential negative impacts of not investing you can increase that perceived ‘value gap’ significantly.
Clearly this links to your Value Propositions so if you haven’t created an exhaustive list of the benefits your products and services deliver then this should be your first stage.
Once you have created the list, keep it handy and without doubt you will add to it over time. For each product or service, you should be able to list at least 20 benefits. Not features, benefits.
Once you’ve created your long list of your value propositions you can pick and choose those that are relevant to winning the business.
By thinking about the difference you can make, you will start to see that the value of what you offer is more than simply based on cost plus margin or on time.
Essentially your offering is worth how much someone is willing to pay for it. So, make sure you communicate the real differences your products and services can make to your prospects. Don’t assume that they will have figured these benefits out for themselves.
Having thought this through you will no doubt be able to highlight many more benefits than your prospect. Beyond the obvious, based on what your offering does, you can talk about the benefits based on intangible but still important aspects such as saved time, reduced mistakes, reduced cost, increased confidence and so on.
Oh, yes – make a list of all your value propositions and I’m sure your own confidence will increase as you see just how big a positive difference you can make.
Do this and you will create a higher perceived value of what you’re offering and thus be able to charge more for it.
For example, it may take a landscape gardener a week to build a lovely piece of decking based on a daily rate plus cost of material and charge you say £1500. (Just making up numbers here.)
That same person could describe how the way they build their decking means it lasts 3 times longer than most, that they will design the decking to best suit its surroundings and best suits how it is going to be used and that they offer a 2-year guarantee on the work.
The time it takes and the materials may cost no more, but the perceived value will no doubt increase and with it the price the customer is willing to pay.
Check how much you charge for what it is you offer and make sure that you’re not under selling yourself and that you don’t leave money on the table that a better informed prospect would have been willing to pay.
This is a key part of knowing your business well enough to be able to exploit your key strengths. If you need help doing this then check out my course How Strong is Your Business? This includes my Health Check Tool which will help you thoroughly assess just how strong your business is.