Pricing products and services is a challenging part of doing business. You will bump into all of your own limiting beliefs, and also everyone else’s in the form of fear-mongering and bad information on the internet. 

That said, most of you want to run a profitable business, and in order to do that, you have to make money. Selling your products or services too cheap will leave you scrambling for customers, or hemorrhaging money and maybe taking on debt. 

I was talking with a friend who is thinking through the right price for an online course. As is the usual guidance, she is looking at competitors’ pricing and seeing what they are charging. That can be a good place to start, but you have to go deeper than that. Are the two courses equivalent? How long do they take? How much live interaction is included? How much support do participants get? 

These are important considerations. A self-serve course with no interaction can be less expensive and still be profitable. 

In “Pricing Strategies: Top 3 Pitfalls to Avoid,” Nicole Fende dives even deeper, saying:

Pricing Urban Legend #1 – You can set your prices using your competitor’s prices.
Alternate Title: All the cool kids are doing it.

If I had a nickel for every time I heard this one, I’d already own that island in the Caymans. Let me give you just a few reasons why this could kill your bottom line.

  • Do you know how much profit (if any) that your competitor is making?  Why would you blindly follow someone when you don’t even know where they’re going?
  • Are your products or services exactly the same? That’s about as likely as sighting Big Foot in your backyard. Those differences need to be accurately reflected in your price.
  • How does your expense structure, including the cost of capital, compare to your competitors? Don’t know? Then how can you know their price will work for you?

In my conversation, I went on a bit of a rant about not competing on price and definitely not trying to price below the competitors as a way to get people to buy in this situation. 

Why? Because my sense is that customers are interested in buying what this thought leader had to say vs. another one. I doubt potential buyers are doing an online search for this type of training and evaluating the offerings of other thought leaders on the subject. 

Basically, I am not sure there are “competitors” in this particular situation. The potential buyer either wants the information and can afford to pay the price – or not.

We can default to a competitive mindset easily, but I caution you to think carefully about your ideal buyer and what their buyer journey might look like. 

Again, here is Nicole Fende with the mic drop:

Pricing Urban Legend #2 – Just set your prices lower than everyone else.
Alternate Title: You had to hire a prom date.

Is your business product so lame or your service so crappy that you have to pay people to buy it? If you’re undercutting everyone’s price, then you’re losing money. When you knowingly offer a product or service at a price that costs you money, you are paying people to take your product or use your service.

When I point this out, I’m often told, “We’ll just make it up in volume.” I’m going to let you in on a little secret. If you’re losing money when you sell one hundred of something, you’re going to lose a whole lot more money if you sell one hundred thousand of something.

Also, when it comes to pricing, it’s helpful to keep in mind that many people buy for prestige. Being the highest-priced offering can be a good strategy – and very profitable – if you have the product or service that backs that up with value and a buyer who likes to buy “the best.”

Photo by Artem Beliaikin on Unsplash