A tip to remember when pricing your products or services

Pricing your products or services is not easy. When I was first starting out I faced the challenge that many freelancers do — sometimes pricing my offering too low and losing money; and other times pricing my offering too high and losing the opportunity. Through ongoing trial (and error) you find the sweet spot and build from there. But I’m always looking for ways to understand how to price appropriately so I can help my clients when they face those sames challenges.

I just want to make a fair wage while ensuring that my clients get value. Many of my clients want that, too, but I’ve encountered others on both sides of the spectrum: pricing absurdly low as a sort-of competitive edge (which I recommend against) and pricing extremely high as an indicator of value and to generate more profitability.

Recently, I encountered two situations that helped me think about pricing.

Scenario 1: Not worth my time. When I rented a car during my vacation to the UK, I apparently drove through a restricted traffic zone and received a ticket for it. It was mailed to me all the way from England. Friends suggested that I try to fight the ticket since I didn’t drive through the restricted zone but I just drove across one small edge of it (for less than five minutes) after taking a wrong turn. I know of other cities that will waive traffic fines for out-of-towners. Fighting the ticket seems to make sense because then I wouldn’t have to pay. But the thing is: The cost of the ticket, although steep, is still cheaper for me to pay than if I were to fight it. I could spend an hour writing a letter and/or speaking to a bureaucrat on the phone and I would have lost money (because one hour of my time is worth more than the ticket).

Scenario 2: The best valued option. I’m remodeling my kitchen, which includes tearing down a wall to create a dining room. So I looked around for options to dispose of the building material that I ripped out. I could rent a truck and haul the stuff to the dump, I could rent a big metal dumpster and have a company pick it up, or I could call a company like 1-800-Got-Junk to take it away for me. Of those options, the dumpster gave me the best value because I could rent it for several days at a fixed cost. The truck rental, on the other hand, would be quite high for a per-day charge plus dump fees, and the Got Junk option isn’t practical because the demolition is taking place over a period of a week and I don’t want building materials lying around on my lawn until I’m finished with the demo. On its own, the dumpster is pretty pricey, but when compared with the other options, the value is definitely there.

So, here are some rules of thumb on pricing that I’ve been thinking about:

  • Among several similar options, don’t be the lowest price. Offer the greatest value and aim for the middle or upper end of the price spectrum. (That’s the way we should aim to be with our competitors)
  • Among several different alternatives, offer the greatest value but aim to be the lowest price. (That’s the way we should aim to be with products or services that aren’t direct competitors but which replace our product or service, like the dumpster I mentioned above).

Clarification: I’m just thinking “out loud”. Obviously, there are circumstances when it doesn’t make sense to follow these rules… and I’m even okay if someone proves these rules wrong. But from where I’m sitting, these seem to make sense for most businesses.

Published by Aaron Hoos

Aaron Hoos is a writer, strategist, and investor who builds and optimizes profitable sales funnels. He is the author of The Sales Funnel Bible and other books.

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