Archive for June 2016 | Monthly archive page

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First, let’s agree that there is a difference between the right price for a product you are selling and a service you may be offering. Let’s also understand that there are products and services in certain types of business for which you don’t control the prices. Examples include insurance and investment brokerage or owners of franchises. Real estate commissions are set by brokerage firms and individual agents may reduce their own commissions but as a general practice, the rate is set by a third party.

But when you work for yourself, you need to establish the right price. If you are selling a product, you need to make sure that you properly account for your labour, materials, overhead and profit margin. If you are selling your services, then you will have overhead and a desired profit level.

In terms of product, there are many studies that you can find online about pricing strategies. Beer seems to be a favourite product to explore consumer behaviour. For example, when consumers were offered three separate price points, $1.60, $1.80 and $2.50, 80% chose $1.80 and 20% chose $2.50. But when offered only two price points, $1.80 and $2.50, they chose the higher one 80% of the time.

I also found 10 different strategies, each one a topic unto itself. For simplicity, here they are:

1. Penetration Pricing – low price to attract new customers
2. Skimming Pricing – start high but eventually lower with time. Eg electronic games
3. Competition Pricing
4. Product Line Pricing – different prices for different products in the same range; eg cars
5. Bundle Pricing – BOGOF, buy one, get one free
6. Psychological Pricing – positioning price within the market eg $99 instead of $100
7. Premium Pricing – to reflect exclusivity; custom made clothes
8. Optional Pricing – selling extras
9. Cost Based – cost plus markup; used in highly volatile markets such as gas prices
10. Cost Plus – cost & % profit

Michael Masterson spends considerable time in his book, “Ready, Fire, Aim” discussing optimal selling strategies – the particular combination of media, pricing & positioning that will bring you the most qualified customers. He also discusses how pricing affects your sales. The one statement he suggests that is simple – start by selling it at the same price as your competition. Once again, I suggest you pick up a copy of his book and read the first 150 pages.

When it comes to selling your services, if you can control your selling price, then all you need to do is make certain that you are covering all your costs and making enough of a mark up to meet your financial goals. Michael Zipursky offers a simple fees calculator that takes most everything into consideration.

Since it’s an Excel spreadsheet, it’s easy to modify to suit your needs. I can send you a copy if you email me your coordinates.

Last, some service based professions such as interior designers have their own issues making pricing a challenge. They typically get revenue from consulting fees, drawing fees and product resale. But as a profession there are no standards so it’s difficult to set prices. This is also true for notaries and I’m sure there are others that fit into this category. As a consultant, I do not charge for an initial consult but I know others that do. It all depends on perspective, the industry and in some cases what works for the individual. Often, whether you sell a product or your services, it’s a matter of trial and error. I’ll leave you with one last thought – when should you say no? I cannot give you a pat answer, because there are many variables to take into account, including your perspective of your client. So maintain the strength of your convictions but always make flexible your vision.
Happy Pricing!

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How many of you out there have had a customer or client that no matter what you did, your customer was just not pleased. If you lowered your price, it wasn’t low enough. IF you included the cost of shipping, it was only a small percent. IF you offered 2 for 1, they wanted 3 for 1. IF you promised to deliver by Monday, they wanted it on Sunday. I’m sure you can add a few stories to the list.

So what do you do? I guess it depends on you, the business you’re in and the relationship you have with your customer or client. I remember once I was doing collections and I asked on for the amount overdue, not the current amount. Well the verbal abuse I received cannot be written. I concluded the conversation by explaining the amount I wanted and hung up. A few weeks later, the customer attended our major spring fashion show. He was talking to the owner of the company who came by to explain that the customer didn’t understand why I wasn’t talking to him (the owner knew the whole story from me). I replied, “When he apologizes to me I will most gladly engage in any future conversation”. The owner delivered the message, the customer did apologize and our future relationship proved to be an excellent one, even when I asked for money. Sometimes you just have to take a stand.

I want to make one point – taking a stand does not mean being rude. It means be firm. It means stay strong to your convictions. You do not want to lower yourself to the level of your customer or engage in a “tit-for- tat” dialogue. Be professional.

But there is another situation where the cost of doing business with your customer outgrows any profit you might make. This can be especially true when your product margins are low rendering little room for you to satisfy a customer ALL the time (there are times when you need to make right a wrong, of course, but that is not what I am talking about here). A good example is a customer who often buys wrong and returns merchandise more often than not. So what do you do? I would first try to have a face to face or heart to heart conversation with the customer. Put your cards on the table (again be nice), explain that you’re losing money because they are returning goods ordered far too often and ask them to look into making changes on their end to significantly reduce and eventually eliminate their constant returns. Failing that, I recommend that you part ways with that customer. Does this sound harsh? I don’t think so. BOTH companies are in business to make a profit, not just one. So you should not feel guilty that you need to fire your customer if you’re losing money because of his practices.

I offer consulting services to charities and not-for- profits. I have quoted the same basic rate since inception, seven years ago. On occasion, I will give a discount where I feel it’s warranted. When, however, I am asked to do work for free, I remind the potential client that I make my living through my consulting practice. I cannot volunteer for every possible organization. I, too, need to put food on the table. I am never sure if this is right or wrong, but this is where I always say, “No”. Over time, I have come to accept this and feel quite comfortable that I have done the right thing. I hope you do as well.

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