A huge gray-area for every entrepreneur is the issue of pricing -- How much should I charge? Whether you are a service-based leader or a product developer, knowing the acceptable way to charge for your expertise can present a unique challenge in the marketplace.
There are 3 things you need to consider:
- If you charge a very discounted rate, it may have an adverse effect on the value of your company. Your target market will assume you are offering a poor quality product or service.
- If you over-charge, especially in the formative stages, it may create irreversible damage to your credibility before you build your tribe. A recent example would be The Fyre Festival of 2017, where guests invested nearly $20,000 per ticket for a below rate experience.
- If you charge market rate, you may sustain a competitive advantage in the market, while increasing your credibility long term.
The urge to under-price products while focusing on capitalizing on an up-sell to consumers later is a particular issue for many women entrepreneurs. It often has the unfortunate impact of limiting their ability to scale. I work with high performing leaders daily, who struggle with pricing their offers and products due to the magnitude of competitors in the space.
There 7 key factors entrepreneurs must consider about pricing to avoid costly mistakes while growing a company to scale:
1. Define your target market
Focus your attention on the end user/consumer. You must be very specific on defining your intended target market, including but not limited to: age, location, income, gender, buying habits, growth demands of the end consumer, etc. Defining the target market early will allow you to create a price index based on their needs. As your company grows, you must re-evaluate your target market.
2. Study the habits of your consumer
This step will allow you to fill in any deficiencies you have within your business model. We forward surveys each quarter to learn more about the changing needs of our clients. The feedback allows us to improve the experience, create new products based on their needs and increase pricing.
3. Consider the value of what you offer
Grant Cardone once stated "when the value exceeds the price, people will pay more." Make sure you are aware of the difference between quality and quantity. Are you offering a premium product/service? Pricing premium products and services accelerate the demand of your business model by focusing on the need of the end user, rather than the price.
During the early stages of my company, I missed out on a considerable number of opportunities due to focusing on "affordability" rather than quality. Hence, consumer feedback was dismal over a decade ago. Discount pricing will not attract a targeted consumer market.
4. Stop competing with your competition
The greatest lesson you will learn as a high growth entrepreneur is you will never win by competing. Remember, your competitors' price is based on longevity and demand. In addition, you need to focus on allowing the market to gravitate toward your services.
You must learn from your competition without competing. Price according to your demand, not the competition. We advise all women to "keep your eyes on your own prize" when it comes to pricing.
5. Host focus groups
Partner with local market research firms and allow them to test your pricing with your core target market. The feedback will allow you to make improvements during the development stage. Choose a market research firm that specializes in your industry to gain valuable data, in addition to their facts and findings.
We host 2 focus groups each year to determine price increases based on accelerated demand and credibility. Your target market provides feedback on price tolerance based on your expertise. Once you have identified your market, do not miss this step. We work with many struggling women entrepreneurs who leap into business without examining the proof of pricing, which hinders the ability to scale.
6. Be flexible
The results of your market research may indicate to need consider consumer tolerance within your pricing. Make sure you are flexible and leave room for pricing adjustments, while remaining profitable.
7. Focus on quality and credibility
The first time an influential media personality mentioned my name on a show, the demand for my services were overwhelming. Within minutes, my website was buzzing with activity and there were endless requests for my expertise; all as a result of a simple unsolicited mention. The moment your products and services become validated by credible sources, you will have the advantage of raising your prices based on the demand. Pricing becomes irrelevant once your business has attracted authentic credibility due to your attention to creating a business model based on quality. I define it as 'credibility is the royalty payment for quality, not quantity.'