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PRICING

Ask Every Customer This One Question

The first step to charging customers a fair price--and also a price that helps your margins--is persuading them that they're getting far more than what they're paying for. Here's how to start that conversation.

Ron Baker's mission in life is to eradicate the concept of basing prices on cost. He prefers to base pricing on what customers are willing to pay. This is known, quite simply, as "value" pricing.

Sounds good, but how can you transition your organization from traditional, cost-based pricing to value pricing? Or, if you're already using value pricing, how can you determine if your customers would be willing--and more importantly, happy--to pay even more?

The Conversation

The crucial step, says Baker, founder of The Verasage Institute consultancy, is to have a serious conversation about value. Begin with a phrase similar to the following: "Mrs. Customer, we will only undertake this engagement if we can agree, to our mutual satisfaction, that the value we are creating is greater than the price we are charging you. Is that acceptable?"

Baker admits to "shamelessly" stealing this question from a book by a former McKinsey partner. He loves the question, he says, for seven reasons:

1. It creates trust.
2. It aligns incentives.
3. It differentiates you from competition, and implies that how you sell is indicative of how you solve. 
4. It frames your services as investments, rather than a one-time expense.
5. It inspires action.
6. It improves communication, since it's focused on results. 
7. It lowers clients' price sensitivity. 

In short, Baker argues, this one question initiates a value quest, with both the company and the client focused on uncovering every aspect of value. 

Fear Not the Transition

Isn't it possible that you'll anger current customers by suggesting--even if you frame it as a mutually beneficial "value quest"--that you're going to increase what you charge?

Baker says anger is an unlikely reaction, as long as the customers still believe this critical part of the one question: That the value we are creating is greater than the price we are charging you.

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