You’re not charging enough for your product or service. You need to charge more.
Now, if you’re like most entrepreneurs, the statement I just made scares you to death. Of course, you’d like to be paid more, but you’re terrified of what would happen if you raised your prices. You’re convinced your customers would run out the door and down the street to your competitors.
And you can’t bring yourself to take that risk, so you keep your prices at the low levels where you’ve long had them.
I need you to understand something: To the extent you’re not charging as much as you should for your products, the hang-up does not belong to your customers. The hang-up is yours.
Almost every entrepreneur I know charges too little for his or her products or services. They’re caught up in the perpetual (and entirely unproductive) race to the bottom when it comes to pricing. All their competitors are jockeying to offer the lowest prices, so they think they need to do the same.
This is a race no one wins. Everyone cuts into their potential profit margins and the “winner” may get the most customers, but also gets the lowest margins of all. Everyone else picks from the leftovers.
Why would you want to be in a race like that?
The path to success is to develop a premium product and charge premium prices. It’s to get customers to the point where they’ll gladly pay more because the last thing they want is for the product to go away.
And you can do that. But for many entrepreneurs, the hardest part is being confident of that fact.
When I work with entrepreneurs on this issue, I put them through an exercise that scares them to death. I have them go out and buy a premium product – spending way more money than they would naturally be inclined to spend for a product in this category.
I’m not talking about buying a Mercedes. I’m talking about a premium product that costs under $1,000. Maybe they buy a Yeti cooler for $500, which gives them hives when they see a Coleman cooler sitting there at $30. Or maybe I have them buy a Versace bag or a Gucci belt.
This kills them, and the more frugal their nature, the more they struggle with it. But I want them to do it because I want them to understand the concept of a truly premium product. I want them to understand why certain products can and do charge more.
This is designed to get them to stop listening to the voice coming from their subconscious that demands to know: “How can you possibly charge that much?”
You can charge that much because you’re providing exceptional value. And once they’ve purchased the premium product at a premium price, they’re starting to understand what that means.
This is crucial, because it’s not simply a matter of charging more and expecting people to pay it – although I do maintain that most companies are charging too little for what they’re already offering. The focus has to be on premium value. It’s about a real difference in quality – whether that’s a consumer product or a professional service.
In order to really understand this, the business person needs to get inside the head of the customer, but only to a point. The business person has to consider: How would the customer react if he or she could no longer have access to this product or service? What problems would that present for them? How is the customer using the product or service to become happier or more successful?
A truly premium product or service is something the customer wants more than he or she wants the money it costs to get it. The customer gladly hands over the money to get that product or service, and would gladly pay more if that’s what it takes to get it.
When the entrepreneur can get inside the customer’s head to this extent, it becomes possible to make that product or service truly premium and charge a premium price for it.
But you have to be careful when you get inside the customer’s head, because you can go too far in identifying with the customer. Your empathetic side knows that your product is high-priced, and wants to cut that customer a break. You think it would be an investment in customer goodwill, and you can work up a justification in your head for how you can get by all right with a smaller profit margin on the sale.
Don’t do it. The value of the product is what it is, and you’re serving your customer better by requiring full price. The customer gets used to the idea that this is what it costs, and can adjust budgetary thinking accordingly. Also, when you charge full price to reflect the real value of your product or service, you make it much more likely that the product or service will be around over the long term.
Consider those swanky Disney resorts that families save up all year to visit. I’m sure there are big-hearted people at Disney who would love to cut those families a break and let them visit for much less. But if that became the normal order of business, the premium nature of that tourist experience could not be sustained.
Charging for the full value actually benefits both the seller and the buyer, because it aligns both sides of the transaction to reflect the real value being delivered. That keeps the service available and gives the customer a realistic understanding of what it takes to get it.
There’s an art to raising your prices. The nervous entrepreneur’s instinct might be to sneak in a mere 5 percent increase and hope no one minds. I think that’s the wrong way to do it. The customer who objects to price increases will probably object regardless of the amount. So if you really want to raise your price 20 percent, just go ahead and do it. The same customer who objects to the 20 percent increase would probably object to the 5 percent increase.
The rest will recognize the value of your product or service and understand that it’s worth what you need to charge for it.
Of course, this begs the most important question of all: Are you confident of the value you offer? Too many entrepreneurs are not. They might even be right. Then again, they might be reacting to all kinds of shadows in the subconscious that are telling them to doubt themselves and their work, even though an objective assessment would say you’re delivering good value and your prices should reflect that.
Finally, charging more benefits you in another way: When you charge premium prices, you get real feedback. When a customer is investing that much in you, they’re going to let you know if they like or don’t like what you’re giving them, and why. You learn from that. It’s one of the best experiences you can have as a business person.
But it has to start with you getting past your hang-ups and believing that, yes, you’re delivering premium value and you can charge premium prices for it.
Try it! I know you’re nervous. But you’ll never be sorry you did.