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3 Reasons To Raise Your Prices Today
Combatting common protests for charging premium pricing
One of the most common phrases given to entrepreneurs is “raise your prices”. This seems like blanket advice, but it’s almost always the right thing to do for three reasons.
1. Sales makes up for a lot of sins.
Protest: Raising prices means I will lose customers.
Justification: Raise your prices to a price point that means more total profit even if 50% of your customers left.
If you’re in business to make money, the only thing that matters is your time home profit. Not the count of sales you made. Not the lives you impacted. Profit.
If I came to you today and offered you two different businesses. The first is an ecommerce DTC product doing 10,000 units a month with $100,000 in profit. The second is a consulting business with 5 clients also with $100,000 in profit. Which do you choose?
You’re always going to pick the consulting business. First, you need less people. Finding 5 new clients is exponentially easier than finding 10,000 new customers. Second, the time and hassle of managing 10,000 orders will be multitudes higher than managing a few people one on one.
Focus on profit, not count of sales.
2. There is no advantage of being the second lowest priced offer.
Protest: I want to remain competitive on pricing.
Justification: If you aren’t THE lowest priced offer, you don’t stand out. Become the low price leader OR charge the maximum possible.
Being competitive on pricing is kind of a joke. It means what you’re offering is essentially on par with everyone else. You’re also letting your competition dictate what you should charge.
There’s only two pricing strategies you should pursue.
Become the low cost leader. This is hard to do because you often need a distribution or economic advantage to get goods and services way cheaper than anyone else. Walmart is able to be a low cost leader because they have both.
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Become the price leader. When evaluating a product or service, customers will always look at the lowest price, then the highest price, then evaluate everything in between. Being the highest price gets you seen. You might make less total sales, but your profit will be more than the 98% in the middle.
You want to be noticed and you do that by falling on a pricing extreme.
3. Serving a customer with higher willingness to pay comes with less hassle.
Protest: What if my product isn’t good enough
Justification: More focus on fewer customers allows you to serve them better.
In the ecommerce example, it’s your job to ensure that 10,000 customers are happy with their product. This is inherently impossible because that is 10,000 different sets of expectations. Some will be blown away with how great you’ve done, some will be disgusted with you.
It’s very difficult to please that many people.
Instead, choose to please much fewer people because you can control their experience.
When not burdened with customer service and returns on 10,000 orders, I can focus on making a premium experience for a few people. So good in fact they’ll want to tell their friends about it.
Selling a more expensive product also means that you only attract those with willingness to pay. What comes with that willingness to pay is the higher expectations of the product or service.
You’ve heard of the wine test where people sip 3 wines at different price points and assign them a corresponding value, only to find out that they’re all the same wine? Even if your product isn’t 100x better, the mindset of the customer is far more important.
Walmart likely does a million returns a day on sub 10$ items. Guess how many consulting clients ask for refunds.
Have a good week - keep attacking.
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