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Career Resolutions -- Make Them Stick in 2006
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Part 2- Charging Higher Prices For Services and Products - Perpsectives On The Bottom Line
In the first part of this series we looked at the effect prices
have on profits. A change to the upside can have a wonderful
effect on profits while reckless discounting and careless price
reductions will surely have a disastrous one. If you don't fully
understand the implications, or haven't read Part 1, go back and
do so now. (http://www.paullemberg.com/higher-part1.html)
By now you may be asking yourself, "What should my prices be?"
Before you go start changing prices, you need to clarify a core
part of your overall positioning. You need a pricing perspective.
Do you want to be a low priced provider, or would you rather
sell the premium product? There are good reasons for being a low
priced seller. Just as Michael Dell - that's where he started,
although he certainly isn't there now. Or look at Costco, or
Amazon. If you look to these models for inspiration, make sure
you have three things: a firm grasp on your margins, deep
pockets, and the ability to do lots of volume. Without all of
these three, you will surely go broke.
Where are you personally more comfortable? If you sell at the
high end of your price spectrum, you are likely to attract
higher end clients, and it would help to be comfortable in that
rarefied atmosphere. On the other hand, you may feel better on
the low end. It's a choice and you have to make it.
What will attract the type of clients or customers you want?
Your price is a signal to your potential clients telling them
who you are in the marketplace. And if your goal is to raise the
quality of your clientele, the easiest way to do so is increase
your prices.
Do you want a low service, volume business, or would you prefer
fewer, select clients and give them "high-touch"? High-volume,
low-touch businesses can be very profitable, and can generally
scale more easily, but require more planning. Low volume,
high-touch (select always means high-touch) businesses, may be
easier to build and require less overhead. If you are thinking
of a lifestyle business, go the latter route.
Do you want a quick in-and-out transactional business, or would
you rather develop long-term, nurturing client relationships? If
you want to build something easy to scale and perhaps sell down
the road, high-volume, low touch may fill the bill. If you are
developing a life style business to carry you into old age, or a
"professional" business with a strong public image, think
long-term and nurturing. Higher prices usually go hand-in-hand.
Develop a pricing perspective that fits your goals. Your
decision will go a long way
to determine who you do business
with and how you do it, and will also effect how you can dispose
of your business. There are no clear guides to the right choice.
It's more a matter of preference and positioning.
But perspective is not the only element to pricing. By itself it
will tell you how to price (high, low, middle of the road), but
not the exact price itself. Before I share with you how to do
that, let's examine a few common approaches to pricing.
As nuts as this may sound, lots of people price to pay the
bills. No kidding. I've seen this advice in more than one
article for professional service companies. "How much money do
you want to earn? Divide that by how many hours you have to
sell..." And so on. (By the way, cost-plus pricing is just as
crazy.)
Price to time. This is what most services people do. They set
their prices by the hour, or by the day. The biggest problem is
this makes it way too easy for prospects to compare your price.
It also puts them in control of your time if they do buy.
Price to competition. This is the most common form of pricing,
and is the core of all prices based on market research. And it
makes sense if your offer is comparable to that of your
competitors.
One last common pricing structure is front-end or loss-leader
pricing. Loss-leader pricing is not designed to generate
operating profits. Its purpose is either to take market share
from competitors or create customers to whom you will later sell
other things.
If your goal is to drive your competitors out of business, and
you have deep pockets to sustain an unprofitable price war, this
can work brilliantly. Many big box retailers, including Staples
and Home Depot have followed this strategy. Long years of low
prices eventually crushed their competitors, and both raised
prices when their markets thinned out.
If you have a profitable and expensive product or service, an
effective approach is to sell something that is cheap. For
instance, if you have a high-end seminar, a low end ebook or
free consultation can bring in all the customers you want.
There are other considerations to pricing besides the bottom
line. But if you want to understand how to increase your
profits, stay tuned for Part 3.
(c) Copyright Paul Lemberg. All rights reserved
About the author:
Paul Lemberg is the president of Quantum Growth Coaching, the
world's only fully systemized business coaching program
guaranteed to help entrepreneurs rapidly create More Profits and
More Life™. http://www.fastergrowthnow.com
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