“Low price is just ONE tool to acquire customers—the laziest.” –Dan S. Kennedy
Most businesses don’t know how to price their services. They’re charging too little because they don’t understand how much price elasticity exists. But when you look, it exists in EVERY market.
This month, while looking for a way to continue making progress on my health goals, I found a company charging 7,880% MORE than its competitors.
Because my husband and I travel frequently, we wanted something we could do anywhere in the world. Considering options, my husband suggested rope jumping. This sounded ideal. It’s a lightweight, easily transportable tool, that boxers have used for years to get super fit.
If you are like me, because at first glance there doesn’t appear to be much to a jump rope, you’d correctly assume jump ropes cost in the $10 – $30 range. In fact, when searching on Amazon, I found pages and pages of listings and choices in that range. Not surprisingly, a few jump ropes crept up into the high $30 to low $40 range. However, you might be shocked to learn you can purchase jump ropes from a company called Crossrope for $798.
They are receiving 7,880% more than the majority of jump rope sellers on a regular basis. While this is just one example of price elasticity, it exists in EVERY business category.
Look at the IT service provider and MSP market. Are you the highest priced in your market, somewhere in the middle, or near the bottom? Many IT providers and MSPs who suffer from low margins will find that there are a number of providers and MSPs in their market charging significantly more than they are. These providers charging top fees in their market are using price to their advantage, choosing to use it as a positive marketing tool.
Interestingly, the most dangerous price position is in the middle, not the lowest (which is not a strategy I’d recommend) or the highest. When you are in the middle, you have no differentiation. When you are the lowest, you must make sure your business model is correct and that your target audience is one you enjoy working with and can make work. When you sell on being the lowest price, you take the focus away from the value you provide and place it squarely on price. (Offering discounts is also selling on price.)
Premium pricing, on the other hand, gives you the advantage of the belief that the higher price is associated with better quality, more exclusivity, more expertise, and so on, even if that is not the case. It allows you to work less while earning more. It makes you more profitable. You’re able to devote your full attention to doing the best job possible for your ideal clients because you’re not running around servicing masses of low-quality clients who are not profitable for you. You’re able to provide a better customer experience which means you end up working with higher quality clients who you enjoy. Premium pricing attracts a constant stream of your ideal, high-quality clients, while the lower end clients stop showing up. Plus, premium pricing gives you more money for marketing, which allows you to show up consistently and frequently in front of your ideal target audience.
For example, since clicking on the link for Crossrope, their ads have dominated my feed. They are omnipresent, making their company appear everywhere I look and are often the ONLY jump rope company I see being advertised. Plus, they outspent other exercise options I was considering, moving them to the leader of the pack among what I’m considering for exercise.
This strategy is so powerful, that if I had to pick just one strategy to advise business owners (within the context of marketing) to adopt, it would be premium pricing.
Here’s why: There are only 3 ways to make more money. 1) Get more clients; 2) Get every client to spend MORE with you; 3) Make more profit on every single product or service you sell.
Since it is no more expensive to market to a client who will pay more for your services vs. a client who pays less, why not target the client who is willing and able to pay more? Plus, the only way to make more profit is to charge more (premium pricing) or lower your cost of goods sold by purchasing cheaper tools, paying employees less, increasing productivity and so on. Premium pricing is the easier and better choice to lowering your costs.
While premium pricing sounds appealing, most MSPs and IT companies are fearful of raising their prices. Two myths which keep companies from raising their prices are:
Myth #1: IT purchase decisions are made on price. This is a false belief which, when focused on, can attract more of this type of decision-maker. The reality is only a small percentage of buyers of ANYTHING make decisions solely or predominantly based on price. If they did, we would all be shopping at Walmart, driving a Hyundai and dining at Taco Bell.
Myth #2: Raising fees causes price resistance. To be clear, ALL companies, to a certain degree, will face some price resistance. In fact, if you aren’t receiving any price resistance it is a good indication you need to raise your fees. That said, here are four ways to combat price resistance:
Price is extremely elastic for EVERY product and service on the market. Raising your rates, even just five or ten percent, will increase your profits. Plus, not only will you grow your business and profits, your business will be a lot more enjoyable and fulfilling because you’ll be working with more high-quality clients. For more information about how to find clients willing to pay premium prices for your services, visit www.Managed-Services-Marketing.com and get the Million-Dollar Managed Services Blueprint, a system that will give you a step-by-step, field-tested, proven process for converting break-fix clients and attracting more high-dollar MSP clients.