5 Ideas for Sharpening Your Price Structure
Pricing Pointers, Issue #70
A lot of times a pricing strategy breaks down in the details. Buyers become confused, money gets left on the table. In this issue of Pricing Pointers, I’ve put together ideas for evaluating and sharpening your price structure.
1️⃣ “Your product (or service) is too expensive”
Compared to what? There are two answers:
The simple answer: compared to the benefits they’ll get from your offering. The deeper answer: compared to their best alternative to your offering.
If you don’t know what they consider their best alternative to be, start with whatever they’re using now, including doing it themselves. Once you have a reference point, you can prove how your offering is faster, better, easier, more convenient, safer and/or actually cheaper.
2️⃣ Many small businesses drag down their profits with three common pricing mistakes
These oversights are costing them money every day.
Underestimating discount math. Calculate your volume hurdle before cutting your price. How many more units will you need to sell just to make up for your price cut?
Ignoring pricing psychology. Change how buyers compare your offer. What premium option can you add to make your standard offer look like a bargain?
Confusing revenue with profit. Conduct a contribution margin analysis of your best-selling product. Does its revenue exceed its direct, avoidable costs?
3️⃣ How do you unlock new revenue streams and boost your profit margins?
The answer might be in a powerful price strategy called unbundling. Unbundling means breaking your offer into separate, distinct pieces that can be sold on their own.
You start with an enticing low-priced basic offer. Then, you boost your profitability with high-margin add-ons. These are optional products or services that will enhance the buyers results or experience with your basic offer.
This approach gives your customers the flexibility to pay for only what they need. The result? You reach a wider market while boosting your bottom line.
4️⃣ Want to create an enticing upgrade?
Think in terms of these three value levers. Once you’ve established your core offer, you need to create higher value tiers. But don’t be one of those people who throw in “extras” willy-nilly. Upgrades only work when they follow a logical path of increasing impact. Look at the elements of your core offer, and use the “More, Better, Different” framework to make them more valuable.
More: Increase the amount of a core element (e.g., weekly service instead of monthly).
Better: Provide a higher-quality version of a core element (e.g., priority support or faster turnaround).
Different: Add a supplementary product or service that satisfies a related need (e.g., adding lawn edging to your mowing service).
Used alone, or in combination, they help your customers find an option that matches their desired results and budget. Which of these value levers—More, Better, or Different—could you apply to your core offer today?
5️⃣ Increase your revenue by tying every price jump to more value
There’s a golden rule when it comes to creating a tiered price menu: Make sure each higher price tier offers a significant, obvious gain. A logical progression makes spending more feel like a smart move. Conversely, it makes spending less feel like a risky choice.
Look at your price menu. Is every jump in price tied to a clear customer gain?
One last thing . . .
Sharpening your price structure doesn’t mean a total re-do. Sometimes, a small tweak can make a big difference. Which one of these ideas do you want to try first?