Thursday, December 13th, 2018

The Price is Right! – Figuring Out What to Charge

By Ellen Rohr on Nov 02 2010 • Filed under Money

You want to make more sales and more money. Good for you. That's good business.

Here’s the problem. More sales at a losing selling price is like cliff diving into Lake Powell. You might not hit bottom, but you might. It’s going to hurt if you don’t know what’s below.

If you don’t know how much you need to charge, you can be tempted to lower your price. If you aren’t sure where the bottom of the lake is, you may risk it. If you do know, then you can confidently walk away from a sale if it’s going to cost you to make that sale.

The secret to making money

Once upon a time I learned a great secret about making money in this business. Here it is…

You’ve got to charge more than it costs.

Do you run accurate financial reports every week? Great. Then you know your costs and you know if you are making money. Or, are you cliff diving…at night…hoping there is enough in the chequing account to cover this week’s bills? Maybe you know you should keep better track of the money, but you keep putting it off because you are…

  • Too busy?

  • Afraid?

  • Financially illiterate?

…or all of the above?

Get over it. It’s time to clean up the “slinky-knot” mess you may have made of your accounting program. As the owner, you’ve got to know because it’s your money.

Get the financial reports current and accurate. Then, crunch the numbers. Put a simple budget together. Add up your costs of doing business and then come up with a top line sales goal that covers your costs and leaves you with a profit. How much profit is up to you. (Isn’t it nice to be the boss?) Use a pencil and a columnar pad, or a simple budgeting program.

Now, if you are just guessing at your costs, you won’t have a clue as to how much you need to charge. You could be swayed by your knuckleheaded competitors who haven’t crunched the numbers either. You might be tempted to try and match their price. (Really…how do you know that they are making any money?)

If you are priced properly, you are probably going to be the high-priced provider of your goods and services. You’ll be in good company. Notice where most market leaders are positioned when it comes to their pricing. Starbucks, Coppertone, Merry Maids, Band-aids, Charmin; these winning businesses leverage the value of their products and services and skip selling on price.

Put a budget together. Come up with a winning selling strategy and goals for sales and expenses. Now, you’ve got a good game to play. Sell enough at the right price and hit your sales and profit goals. That’s how you win.

The shocking truth

So, you've done your research and you created your budget. You've figured out how much you need to charge to make a profit; to have a healthy business; to pay the bills. You feel confident that now, finally, you have priced your services and/or products correctly. You can now charge "the right price."

Now, here's another business secret you need to learn. If you are selling at the right price, you’ll discover:

Your customers don’t want or need what you sell at your price.

If they did, they wouldn’t need you. That’s why there are no commission sales people at Walmart. People need and want that stuff at that price. What price is that? The cheapest price they can find. So yes, when you put your prices up, you will lose some customers.

Ever get a price objection? “Oh, I would love that stuff you are selling if it were only less expensive.” People talk about price because they don’t see the value at that price. The coward’s way to a sale? Lower the price.

But not you. Be willing to charge more than it costs. You are a sales professional. And you will sell your product or service not based on price, but based on something less tangible: the benefits your service or product brings people. Help people solve problems. Sell value and love and friendship.

More sales at the "right price" means more profit

If you just sell based on price, customers will always find someone else who sells it for less. Do people buy coffee from Starbucks because it's cheap? NO! There are tonnes of coffee shops that sell for cheaper. People shop at Starbucks because they find value and pleasure in something that Starbucks offers. It could be the decor and ambiance; the quick service, the unique taste of the product; location; staff; the status of buying higher-priced items. It may even be that they like how it feels to hold the Starbucks coffee cup on a cold winter day. Whatever it is, it is a benefit that they feel is worth paying the higher price for.

And that's the key. Figure out what value and benefits you are giving your customers, that they feel is worth paying for, and sell your product with confidence. You know your product is worth it. Make sure your customers and potential customers know, too, so you can build up a value-oriented client base.

Remember, the more sales you make at the right price, the more money you make. And that's what you need for a healthy, profitable business.


5 Comments

  1. Thanks for this. I have a hard time with pricing because my products are for breast cancer survivors. I want to give them good products, which I design myself, but want to give them at rock-bottom prices to help make them feel better. I realise I’ll go out of business if I don’t make a decent profit, then I won’t be able to help anyone. So I know I’ll have to “get over it” and charge the necessary prices my products.

    • Ah!! Know that people are well served to exchange something for what they receive. Sounds like you had an “aha” moment, as Oprah says. Gratefully, take the money. ;). This allows you to be of even more service. Thanks for the comment! Xo$

  2. How true, Ellen. It is definitely something that a lot of business owners have the most trouble with. I love your strategy. We are not in business to lose money, we are in business to make money… as are our clients. Value and benefits are key to developing a pricing structure that makes both you and your clients’ happy. Relationships also play an incredible role as well.

    • Hi Tracey!

      Thanks for the great comment. As a mentor told me, you can sell at any price as long as the value of the transaction outweighs the price. And the key to creating great value is tied to developing powerful, positive relationships. Sounds like you get this…and that’s contributing to your success! Well done!

      xo$, Ellen

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