Figuring out your price for your product is usually a touchy subject. What if you price it too high and nobody buys it? What if you shoot too low? This is an episode you might want to have a note paper handy for before listening.
Figuring out your price for your product is usually a touchy subject. What if you price it too high and nobody buys it? What if you shoot too low?
This is an episode you might want to have a note paper handy for before listening.
Table Of Contents
In this episode, we’ll discuss:
- The most common mistake product creators make when pricing their product
- How YOUR perception of value of your product can be different than your customers…
- The basis for determining your price
- How to survey your audience to find out what they’d be willing to pay
- How to ask them what they’ll pay without directly asking
- 4 specific questions to learn price sensitivity
- Looking at the prices of your competition… and how to compete with them
This is a meaty episode. Get ready. 🙂
So let us get in to our topic for today, which is pricing.
How Do You Figure Out What Price To Charge?
Now, I am not going to be able to give you a specific dollar amount, obviously. But… I do want to talk about some of the guidelines that go into determining your price and some things you can keep in mind and also do, specifically in the area of survey; to start finding out what you can charge for your product.
The thing about pricing is that it can turn into kind of an emotional roller coaster to figure out what to charge for your product. You could be sitting there worried about what the competition is charging for something similar to what you are selling; you could be wondering about what happens if your price is too high and nobody buys it? Or “Are they going to think that I am being greedy here?” And on the flip-side if you price it too low… Are people going to think that the quality is bad? And so, for this reason; pricing can be this weird mix of personal self-confidence, self-worth, but also prospects psychology on what other people are going to think on the receiving end.
So with this in mind, let us first talk about price and how it affects the perception of value of your product.
Now, what I find out there; and believe me, I have done this, too, is that they tend to undercharge for their own stuff. Now, one of the real reason for this is because we tend to price our products based on our own feelings on the matter instead of putting ourselves firmly in the mind of our prospect. Here is the thing to keep in mind: We have to keep this viewpoint difference in mind here… You are the product creator; you are very intimately familiar with that product; with the material in it… The material of that course is probably old hat to you. You are so familiar with it you do not think it is all that special because you probably are surrounding yourself in that material day in and day out. Now, for that reason, your perception of value of that material is going to be like, “Eh, whatever.” Now, put yourself in the viewpoint of your prospect. They do not see that stuff every day. They still need it and they value it. They value the outcome that it can give them. Otherwise, they would not be a good prospect to you in the first place. So if you price your product based on your own perception, then you could really easily make the mistake of aiming too low on your prices.
Now, let us look at the flip-side of this; and that is going way too high on your prices… I have seen people do this too, I see a lot in the consulting space or in some online marketers; you come out and think that putting some really humongous price tag on something somehow makes them seem like a really big deal. I have seen people who offer a free phone call as a bonus on their product and they are like… “Yeah, you will get this free bonus call with me and my hourly rate is usually $5000 an hour.” Pffftt! That is not even true. They probably never charged that much for their time in their entire life so they are just making crap up. And I have seen it out there. I see some consultants, they will charge 10, 15, 20 thousand dollars for service! And they do not even deliver all that much. It is almost like they think that it is some weird thing that they have justified in their own minds to charge people what the benefits are worth; which is certainly legitimate, but they are not really backing it up with service that is actually worth what is being paid. And so they end up leaving a trail of people behind them that they are just kind of pissed off because they are under delivering and overcharging for it.
I have seen SEO companies do this, by the way; where SEO… People will go and hire these SEO companies to get them up in the rankings on Google and they charge, in many cases, fairly high rates for that but in reality they are not really doing all that much and they are just sitting there telling you, “Yeah, it takes its time, you got to be in this for the long haul” you know… Whatever. So there is a risk of going too high as well. And you might be able to get some people to pay it; but if you do not actually deliver some real good for that that is worth what they are paying, you are going to leave a trail of disappointed, unhappy people behind you. And that doesn’t make a lot of sense, does it?
So instead of making this a lesson on how you screw it up, though, let us talk about how you can get it right.
Getting It Right
The Value Of Your Product
So, first… And I just mentioned this before; the first thing I want you to keep in mind is that people do buy the benefits; they do not necessarily buy the features. Now, like I said, some people; they go and they overcharge, in my opinion, because they keep that particular piece of information in their minds. They are like, “Well, the benefits of these are so large that I am just going to charge a massive amount of money for this. And there is something to that, but only if you truly back it up with some real delivery. If all you are doing is having a couple of phone calls with them and you are charging them like 5 grand for that; you are screwing them. I don’t care how you justify that; you are screwing them.
But it is true that people are buying an outcome. And your product itself is just a medium for delivery of that outcome. And so for that reason, the price really does need to be set according to the benefits of that outcome that they are going to get. If you set your price based on the features it is really easy to get it messed up. You might be looking at your product and think it is just not big. You might think it is just not big enough to justify a higher price point. You might think “Well, it is just like, 10 or 20 videos, it can’t possibly be worth $500.” And you can play a mind game on yourself, but it is because again, you are pricing it based on your own viewpoint. You are intimately familiar with the material and so, it is easy to look at it just from the perspective of how big that product is, what the features are, but you need to instead value it based on the value that your customer is going to get from it.
Now, if I could turn around and deliver a really solid course, that would be guaranteed to make you a hundred grand in the next year with your blog, what do you think that would be worth? You know? Even if it is a course which only consist of a few videos, the benefits of that information would be very, very high. I also know that the more the person pays, the more invested they will be in actually doing the work to get the outcome. So if I set the price simply on the fact that it was just a few videos, I would be shortchanging myself and making it less likely the customer would get the result. So you got to ask yourself… What are the real tangible benefits of your offer? What impact will it have on their lives? What are the benefits of the benefits? This is all good stuff to know when it comes to your copywriting but it is also very important to know when you figure out what to charge for it. It is a really important point.
Ask The Audience
Let us go in to the next aspect of pricing, and that is to start literally asking your audience what they will be willing to pay. Now how do you go about doing that? How do you go about asking people what they will be willing to pay? If you simply come out and ask them, “Hey, I am looking to sell this; what would you be willing to pay me for it?” You are going to have some people to be like “Ah… nothing.” The thing is, their shields go up; it is just a blunt question, they are not going to give you an honest answer to it. And like we have already talked about on this podcast; the only true test for a product is they are actually paying for it. It does not matter what they tell you. They could tell you, “Yeah, I might pay $100”. But when the push comes to shove; if they have not actually paid you $100, it does not matter what they tell you.
So what we need to do is to find a way to get them to name their own price without actually getting them to do so. Now, how do we do that? How do we play that one? Well it comes down to how you survey them. We want to survey people but we want to do it in a strategic way so that we can get the information that we want but in a way that they do not put their shields up.
Now a couple of questions that you could ask would be… “What would you expect to pay for this?” And now, another one would be “If you are offering this product yourself, what would you charge for it?” Now the idea with these questions is that we want to get their viewpoint on what the product is worth and we want them to remove themselves from the equation of being the buyer. That is the idea behind it. We want them to think objectively about it but not have any of the emotional baggage attached to it that might automatically and reactively come in because they are putting themselves in the position of being “Ask for money.”
So that is how we do it…
– What would you expect to pay for this?
– If you were offering this product yourself, what would you charge for it?
So that puts them in the position of the seller. Now, a completely different approach would be to ask them questions that gauge their personal buying habits on other products. And the reason we do this is because we want to find out essentially how liberal are they with their money. That is really what we are asking for.
Now, a very common question that you can ask that would get to this would be “How many times do you eat out during an average week or an average month?” Now, the reason for that is simple… If somebody has more money and they are a little bit freer wheeling with their money they are probably would go out and eat more often. They eat out more often… You could ask them other questions like Do you subscribe with the websites out there? How often do you go out to…? I don’t know, just come out with some questions that would gauge out their buying habits on things that have nothing to do with your product, okay? Essentially, non-essential things; that is what we are really looking for.
Now the point would be to get a gauge of their level of spending; plus you can equate your price point later to these items that are very real to them and put it in perspective. So a way of doing that would be “This product is going to cost you the average cost of one meal out.” If you have done surveys on people and you know that your audience on the average, eats out once a week, you know that it is an amount of money that they do not really miss that much. And so, if you come later by knowing that, in your sales copy and say that this product is going to cost you on the average of one meal out; and then on top of that you back it up by saying all the long range ROI that they are going to get from this versus that meal out that they really do not get any ROI from, you could put it in perspective and that is a great way to do that.
Now, another way to do this is a system out there called Van Westendorp’s Price Sensitivity Meter. This is not something that I made up, it was some guy named Peter Van Westendorp. You could actually look this up by Wikipedia. But what this is his is an essentially marketing technique to determine price sensitivity. Now it can be done via 4 different questions…
- At what price would you consider the product to be so expensive that you would not consider buying it?
So this question is designed to find out what the extreme zone is on the expense side. How high is just too damn high.
- At what price would you consider the product to be priced so low that you would feel the quality just couldn’t be very good?
Now that point, we are trying to find out what zone are people thinking “Well, this thing must suck because it is so cheap.”
So those are the two extremes that we want to weed out.
- At what price would you consider the product starting to get so expensive so that it is not out of the question but you would have to give some thought to buying it?
So, what we are doing here is we are kind of getting to the gray zone of it being too expensive. We want them to be in that range where “It is a little pricey but it is not outside the room of possibility.” They might have to think it over a little bit. And generally we want to find out what that price range would be.
Now, take that same thing, the mere image of it and that brings us to the fourth question which would be…
- At what price would you consider the product to be a bargain; a great buy for the money?
And that gives you the area where they don’t consider it too cheap that they think it is g going to suck but they are looking at it and go “Wow, this is a real valuable thing and this is a good deal.”
You want to know those 4 ranges and those give you a really solid idea of how you can price things.
So, with questions like these, you could even use little number sliders in your survey system and have them kind of range little sliders around. You are just getting their feedback and then you sit back and you look at the average and you see where these ranges fall for your audience.
Comparison To Competition
Now, last thing I want to mention here is comparing to your competition. This is definitely something that you need to do when it comes to pricing your product. You need to go out and look at what similar competing products are price tagged because your prospects are probably going to be looking. We want to know what they consider to be average.
A good example of this to show you why it is important would be the book. You are very familiar with books; especially hard bound books. You go to the bookstore and the average price for a hard bound book tends to run in the $30 range for a hard bound book. So, in that particular market; again, it looks like a standard hard bound book but you are charging $100 for it, then it would be an outlier in that particular market place. And there is a god chance, actually, that people are going to dismiss it because it just costs way too much. Now on the flip-side you might spark a little bit of curiosity and they might be going “Why does this cost so much?” And that can actually work to your benefit from a marketing perspective, but you get the idea. You need to be aware of the different data points of pricing in your market. And if you are going to go way outside of that, you got to have a really good reason to do so. Otherwise you run that risk of people just falling on those two ends of the price sensitivity meter where they think it is way too expensive and just bull crap or they think it is way too cheap and it must really suck.
So that is something you really need to do. You need to go out and look at your competing products in the marketplace and find out what kind of prices are there. It is kind of like in real estate; if you are buying a home, one thing the real estate agent will always do is pull up comps. They want to know other homes in that neighborhood were sold for recently. Very, very important information and the same thing happens when it comes to our products on the internet. So go out, take that time and maybe record that information in a spreadsheet and it will give you an idea where other people are pricing. Now, it does not mean you have got to just aim for the middle of that range. It is just that you need to know what the market expects. And if you are going to go above that, just do it with a good reason. That way you can justify that price.
One Final Thought
Now in this idea of justification of price; I will make one final comment. And that is you need to compete on quality of the product, not on price. I talked in a few episodes ago about when the right time is too shoot for low prices. And that right time for low prices is when you are in customer acquisition mode. You are trying to get people into the funnel and have them take that first step. But you do not want your business to depend on those low prices. When it comes to charging respectable, even high prices, you want to not say “Well, let me under cap my competition.” You want to compete on quality.
So if you have a particular price point in mind, you design the product and the benefits of that product in such a way that it actually matches if not surpasses the price that you intend to charge for it. That is a much different way of thinking about it than you create a bunch of videos or what have you and then you try to figure what kind of price you can get away with. That is really not the right way to be thinking about it. You want to design the product and match the price that you would like to charge. But you got to keep in mind what the average price point is in your particular market and you need to know that information.
So we went a little long on this one; but I gave you a lot to chew on here when it comes to how to figure out what kind of price to charge for your products. Hopefully, that was helpful to you and I really encourage you to put it to use.
I want to make one quick mention here at the end; because we were talking about survey questions and things like that. I have an Action Plan inside the Blog Monetization Lab called the Smart Survey System. And it is definitely something I recommend that you check out; especially if you are already a Lab member. But if you are not a Lab member, this might be one of many reasons why joining the Lab today might make a lot of sense for you. The Smart Survey System Action Plan is designed to walk you through how to create surveys designed to get the information that you want, and pricing is part of it because that is something people struggle with… How do you find out what your audience will pay without just coming out and asking them and looking like a doofus for doing it. So it is covered in that Action Plan but the use of survey and other elements of the business is also covered on that Action Plan; Smart Survey System.
So if you want to learn more about the Blog Monetization Lab, to get access to that plan, head on over there and join us. 😉
I’ll see you on the next episode of Coffee Break Blogging in a few days! Talk to you soon!
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