I’ve been reading a lot recently from people I admire and listen to on the subject of premium pricing. With me, they’re very much preaching to the converted, but there are still a lot of business owners – in a wide range of businesses – who find the idea of setting (and sticking to) premium prices difficult or just plain wrong.
When you look at it objectively, premium pricing is just plain common sense. Why sell your time, or anything else, for less than you could? Firstly, you earn more money. Secondly, you drive away the penny-pinchers who are almost always the most demanding customers – if they buy from you at all.
Raising your prices will increase your profits by far more than you might expect. Let’s say it costs you 80 pence to make the item you sell for £1. That’s 20p profit per item. Increase your price by twenty percent, to £1.20, and your profit will double, to 40p.
If your costs are less, for example if you provide a service and sell your time and expertise rather than physical items, the benefit of a twenty percent price rise will be less marked. However, the benefit of a big, bold price increase will be even more marked, because penny-pinching tyre kickers are much more annoying when you’re trying to work with and among them. Nothing is more certain to drive them elsewhere (to your ‘competitors’) than higher prices.
How much should you increase your prices? Well, you could look at what everyone in your industry charges and take the average. But that could be disastrous, because it’s likely that most people in your industry don’t charge premium prices. And that means you’ll be working for less than you could and almost certainly for much less than you want to.
What’s more, you’ll be dealing with the penny pinchers who are shopping around for a cheap service rather than a good one. You really don’t want to be doing that.
So, a better place to start when you set your prices is to decide how much you are willing to work for. Then decide how will you give that much value to each unit of your time. Position yourself as an expert, a professional and someone who discerning customers can trust.
In the end, premium pricing isn’t just about filling your own pockets. It’s also about providing a better service that justifies and reflects your higher prices. Therefore, outstanding service and premium prices are two sides of the same coin. By working with or for fewer customers you can deliver more for each one. By charging more for what you do you are able to work fewer hours overall and only with the customers you choose.
Someone will always undercut you, however little you charge. Let them. You’ll be surprised how little price matters to a customer looking for a good product or service.
Try raising your prices tomorrow. What’s the worst that could happen?