When I first launched Small Business Bodyguard, my business partner at the time argued with me about the price. She felt it should be offered for more like $200. I felt that it should be priced at $500 or higher. We compromised and the introductory price of Small Business Bodyguard was $275. We kept it at that price for about a year.
That was a mistake.
Here’s why: we priced the product based on our fears. Our fear that people wouldn’t see the value. Our fear that we wouldn’t make enough money to get back our initial investment. Our fear that the people we were pitching it to wouldn’t be able to afford it.
Pricing for fear is a surefire way to put yourself out of business.
This is something that I learned the hard way. If your price does not take into account what it takes to market your product to your ideal clients, then no one will know your name and what you offer. If your price does not take into account what it costs to deliver your product, then your customer service will be lacking and that will hurt your business. And when I say deliver your product, I am not only talking about creating your product, but you also have to take into account what it costs to have you (yes, you, unless you enjoy working for free) and your team delivering the customer service (managing your FB group or forum, updating the product from time to time, dealing with refund requests and other needs, hosting free calls for your customers, etc.).
When you price based on fear, you assume that you have the luxury to worry about other people’s pockets. You don’t.
When you are running a business, you need to be concerned with keeping your own proverbial lights on. The wrong price means that you will be dealing with razor thin profit margins. You’ll make only slightly more than you have to spend in order to create, market and deliver the product. When your profit margins are razor thin, no one knows who you are because you don’t have a marketing budget. When your profit margins are razor thin, you’ll also be working for free.
Prices that are based on fear keep you in a constant state of struggle.
You may find that you have lots of clients and are incredibly busy, and yet you are always struggling financially. If that is the case, then most likely the problem is your pricing. The way to change your situation is to raise your price. That’s a scary thing to do, right? Especially if you’ve already got customers telling you that your price is too high. But here’s the reality, if you are running a business with extremely low profit margins, you are not going to be in business for long.
Here’s what low prices do for us: they allow us to pretend that we’ve got a viable business when we don’t.
It may be hard to hear, but if you are selling your product at a price too low to keep the business running, then you don’t have a viable business. However, you can turn things around. The way you do that is by finding your ideal customers. If all of your customers complain about your pricing, you are talking to the wrong customers. What you need to do is focus on the customers for whom your product solves a real problem that they are willing to spend money to solve. These customers will see the value of your product and be willing to pay a higher price for it (a price that accurately encompasses what it takes to deliver that product).
And that, in the end, is how your product should be priced, according to its value.
Laura Roeder, an entrepreneur with a successful software business, always says “value for value.” I love that quote because it reminds us to price our products according to the value they give our clients.
Small Business Bodyguard saves entrepreneurs tens of thousands of dollars in legal fees, by showing them exactly how to handle their legal needs on their own with the guidance of an experienced lawyer to ensure that the legal stuff is done right. That has a lot more value than $275. In fact, I think it has more value than its current price of $1,095. But only to entrepreneurs who are serious about building a business, right? If I only talked to customers who were wantrepreneurs (meaning they want to start a business but aren’t taking any action to actually do it), of course to them the price is too high because they aren’t committed to creating an actual business. See what I mean?
Price your products for the value they offer in the world and you’ll have a product that covers its costs and provides a profit.
PS: Want to learn more about creating a product for an ideal client that is willing to pay your price? I have an awesome resource coming your way in just a few days. Sign up here to get this resource in your inbox this week.
PPS: Want more on this topic right now? Watch this Facebook Live over on our Rodgers Collective Facebook page. (And give us a like while you’re at it– I do Facebook Lives there every week).