How to know if your prices are right

Pricing is always a challenge, but how do you know if your prices are right?

More often that not entrepreneurs set their prices too low. Finding that sweet spot is prices are rightdifficult but not impossible.

Many assume that pricing is just about the money, well, it is and it isn’t.

What you charge is actually about value. The value you provide, how you communicate it, and your idea of self worth.

When I question someone’s pricing I usually hear “Well, that’s all the market can bear”.

Yes, identifying what the market rate is for your products or services is important, but it should not confine you to that pricing model.

For example, I could walk into Versace and pick up a cushion for €225 ($280), ok it’s printed silk and “it’s Versace” you are thinking.

Now break it down to what it really is, it’s a cushion – I could go to IKEA and pick up a cushion for probably less than €20 ($26) with a pretty cover – not the same thing I know but the example here is to illustrate how a brand communicates it’s brand story, it’s value and how Versace has no qualms about being high-end.

There is always a market for what you charge, if you look for it. {click to tweet}

Comparing yourself to your competition is dangerous because you don’t know their motivations nor their rationale for charging those prices.

How do you know if your prices are wrong?

This is actually a little complicated.

  1. If you can’t make a sale your prices could be wrong.
    Or you could be fishing for clients in the wrong places and are unclear on your target market.
    Or you are not communicating you are worth what you are charging.
  2. If you are getting close to sealing the deal but people are bouncing before paying you have an issue.
    Perhaps you’ve not communicated why you are worth being paid that money.
    Or your prices are too low.
    Or you’ve not published your prices from the beginning.
  3. If you are selling like mad and working night and day 7 days a week then your pricing is wrong too.
    Or you have an issue with your business model.
    You could be charging more, making more money with less time invested.

Let’s look at that again: MORE money + less time. Delicious thought eh? And well, it’s possible, VERY possible.

Low price trap

Many fall into the trap that they need to increase their number of clients and keep their prices low to make money. Unless you are a supermarket item this is usually a model you don’t want to replicate.

Even if you sell products you can apply a higher pricing model to next to anything.

Low prices for something that looks premium creates suspicion.

Think about the Versace cushion again, if you saw it for €10 ($14) you’d look at it then immediately think it was a fake, if you were to buy it you’d not have the same feelings towards it as if you were to have paid the full price.

When looking at your pricing think about your own reactions to things you buy.

I love a great deal, but a great deal doesn’t mean cheap as chips. {click to tweet}

How do you know if your prices are right?

  1. You are selling at a rate that is comfortable for you.
  2. Your clients carefully consider the price and pay gladly.
  3. You are in demand and people want to buy from you.

Pricing is often something you will test until you find that sweet spot. Go with it, nothing is set in stone but be wary of being “too affordable” because most confuse this with being cheap. And there is nothing attractive about cheap, ever.

If you need help with your pricing get in touch.

It’s something I am incredibly passionate about.

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10 Responses to How to know if your prices are right

  1. hi Ameena

    I just found your site and this post about pricing jumped out. I need to read all the others now 🙂
    I’ve only recently launched as a freelance / consultant and knowing how much to charge has been a tough one. Also the debate around hourly rates versus a fixed fee.
    I can take 2 hours to do something people with less experience take longer to do… and I know (from feedback) what I offer has real value. So in selling myself at 2 hours I’m undervaluing myself in some cases. A flat (ROI based) fee would be better on some projects for me. Easier said than done in having that conversation with the client though 🙂
    Anyway – really like your site and I like that fact you use your illustrations to humanise it. nice one.
    Mark

    • Hi Mark,

      Great to meet you … I have a story for you that might help …

      Picasso was in a café in Paris when someone asked if he would do a quick sketch on a napkin. Picasso said yes, drew something and then asked for a few thousand francs. The guy was shocked at being asked for such a large sum of money and said “How can you ask for so much? It took you a minute to draw this!”

      To which Picasso replied “No, it took me 40 years to be able to draw that fast”

      Flat fees vs. hours are often a good idea – only thing is sometimes you win doing that and sometimes you can lose … test!

  2. Generally people have the tendancy to undervalue themselves and this makes it tough when defining the value of the product or service. That’s why so many adopt the monkey see monkey do approach.

    Its like the magical “7” that everyone uses on their price points. There is absolutely no proof that it’s a convincer for the buyer. All it prooves is that the number is heavily weighted when it comes to the pricing options in the market place.

    I agree you have to assess the value to the client, what its worth to them, also the value of your time and somewhere in there is that sweet spot.
    Test..test…test…its the only way to know.

    • Hey Jackie – yeah, what’s up with the magic number 7?

      testing is really the only way you’ll ever know – your rates end up creeping up and then one day you’ll look back and think “wow, how was I only charging X?” Knowing your worth is crucial but hard to do on your own!

  3. I probably look like a bobblehead whenever I read your blog because I find myself nodding so much!

    I used to get a LOT of queries from prospective clients about my writing services. It was frustrating at times to spend so much time going back and forth negotiating about pricing.

    Sure, getting work queries felt like I was doing something right and people were willing to at least talk to me but I realized it wasn’t adding to my bottom line.

    Ever since I published my rates, the queries have gone down significantly. Now 80% of the queries I get result in work and considering that work flow has been steady and at a pace I’m comfortable with, I’d say I’ve found my sweet spot.

  4. Ameena,
    I especially like your example “Low prices for something that looks premium creates suspicion”.

    I made and sold hand made sleeping masks inspired by forest animals. They were ornate and each one had some hand stitched aspect to them.

    I was so hungry to get sales in the beginning that i practically gave them away at local craft shows and online selling them for 12 dollars when each one took a lot of time to make. On a whim i decided to double the price so i could have a wholesale buffer and my sales tripled. More people wanted to buy them, i can only assume due to the higher price, it gave a higher perceived value.

  5. I really do feel it’s about communicating benefit. Where this tends to be most easily demonstrated for me is in my editing contracts.

    I usually ask to see an insignificant sample from a long book, edit it, and send it back with a) compliments to the work the writer has done, b) explanations of the kinds of corrections and suggestions I’ve made, and c) laying out in detail any extra work that will be done within the fee I’m asking.

    I learned to do this because usually I’d ask to do the sample edit, and when people saw them, they knew they wanted to work with me. But I was losing clients when I just gave them a quote. Now they know just how much quality they’re getting, and it’s not so traumatic to let go of a little more cash than they thought they would.

  6. Hi Ameena

    Another great topic that’s close to my heart – the dreaded price tag!

    I design and develop websites and the competition out there is fierce. We’ve got everything from do-it-yourself, students who are happy to design at ‘no charge’ in order to build their portfolio, through to companies who charge an unbelievable amount, for very ordinary work.

    I’ve found, most of my clients don’t really know what they want until they see a visual and the price tag. The costings can bounce all over the place while they fine tune their needs and/or budget. So, I have developed a price structure that suits me, saves a lot of non-chargeable time, and the client isn’t left in shock at the end cost. I charge a fixed fee for the landing (first) page, and a lesser fixed fee for each additional page. Then it’s plus, plus, plus for any extras beyond standard design. This allows my creativity to be constrained to the price tag, the client knows exactly what they will be charged and can budget accordingly.

    I always give my clients more than they pay for. Usually, it’s something quick, eg enhancing an image at no charge. I find that giving more than expected, builds a good relationship with my clients and through their recommendations, more work comes my way.

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