When businesses set their pricing back in the day, the traditional method was to use cost-plus pricing. This strategy takes all the costs associated with developing and delivering the product, and then adds the desired profit margin to set the price.
But in reality, what gets people to buy, especially coaching and consulting services, is perceived value. With the ease of obtaining customer data through the internet today, more businesses are setting their prices the right way by using client-driven pricing. And as coaches and entrepreneurs this is the strategy we want to use.
Why Client-Driven Pricing Works
Once the client understands the unique value of your services, what do they expect to pay for it? What are they willing to pay for it? Client-driven pricing works because it puts the emphasis on the client, not the product or service. You set your price according to their expectations.
Know Your Client Well
The key to success with client-driven pricing is to understand your client well. In order to do this, create an Ideal Client Avatar that includes not only demographic information, but also physiographic info like attitudes, values, and behavior.
A key part of your avatar is the pain points and obstacles the customer faces. Your product or service needs to solve or help with this problem. That is what determines its perceived value. The key to selling is to show the client how your product solves their problems and improves their life.
Other Ways to Add Value
In addition to how your product or service solves problems, there could be other types of unique value it offers. For example, it might offer flexibility in pricing. While your competitors offer only full pay options, you offer different payment plans so the customer can purchase the right one for them.
The Challenges of Client-Driven Pricing
To create your Ideal Client Avatar you’ll need to communicate with your audience and get their feedback so you can use this data to help you determine the right price. One challenge here is that coaches sometimes have reservations about contacting people to have market research conversations. But these are a key ingredient to get your pricing right. Once you have 3-5 done you can see a better picture of what to charge.
The other challenge is that if you base pricing solely on your customers, you could be pricing too low and leaving money on the table. Naturally, people would rather pay less than pay more for things You can charge more for your services by ramping up your marketing and positioning your product for its uniqueness.
Offering True Value
The point of client-driven is to offer the best value possible for you and your client. Base your pricing on the client as a way to start a conversation with them and monitor as you start selling your services so you can tweak as needed.
Do you want to learn more about how to set your prices? This month in the Business Academy we are tackling pricing and packaging. Check it out here!