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Tips, advice, and information for South African business owners

11 Feb

How To Earn More By Pricing For Value

A small business coaching client hired me to help her think through setting her prices in her new practice. She had a price in mind, the amount being neither here nor there. More importantly, why she picked that price is what launched a conversation that put her initial price to shame. Here’s how we set a “scary” price that got her fledgling business flying.

To start our discussion, I asked “Maria” what she thought would be a fair fee to charge. (“Maria” is not only a moniker to protect client confidentiality, she is an archetype for many similar conversations. In case you’re wondering, I do have Maria’s permission to share this.)

Tentatively, she suggested R400 per hour. I asked her to justify that rate by role-playing selling it to me as a prospective client. Her rationale made sense: given her qualifications and years of experience with solid testimonials, R400 an hour seemed reasonable.

What she said next, though, is what triggered a profoundly provocative discussion that challenged all sense of a “reasonable” price point. (Because hey, you don’t hire a coach to pad your comfort zone, do you?)

In her prep for coaching, Maria had researched that normal rates ranged from about R300 to R1,000 per hour. She figured a “safe” price would be acceptable to her target market. Bering a good coach, “safe” could not go unchallenged! So I had her double her rate and then I asked, “What comes up for you?”

A pensive pause ensued. I remained still, holding space for her thoughts and feelings to arrive. Fear came up first, and anxiety that clients might balk. We named a few more, then pressed on.

We doubled the rate again. R1,600 now put us well outside “normal”. Maria’s sense of fear turned to dread. A scenario of no clients and destitution came up. The trauma of rejection clouded the thinking. We worked with it and eventually parked the expectations. After all, the rate wasn’t impossible – top players in her market charged more than this. When she was ready, we again doubled the rate and imagined the future as unbearable and unreasonable as it appeared, Thinking it. Feeling it.

We soon exhausted the sense of rejection and shifted attention to success. We got all the senses involved in imagining what signing up her ideal client at R3,200 an hour looked like. What did she see, hear, even smell? You won’t believe how an imaginary bottle of bubbly can bring to the present many compelling senses of success!

After playing with the what-ifs, Maria found a comfortable price just over the R2,000-mark. Although this price point still frightened her, it was a lot less scary than the peak rate we played with. Her chosen rate felt workable – she felt confident she could sell it.

Later, in my reflecting on our conversation, I was curious about what had Maria get comfortable with a rate over five times her initial, “reasonable” price. The turning point showed in her mood, which coincided with her switch from justifying the price against her peers’ rates. Instead, she framed her price against the value of the benefits to her clients.

In a business analyst’s language, Maria’s approach to pricing and selling shifted to a business case technique. At its core, the business case boils down to two key bits of data: 1) the benefits over costs i.e. the return on investment, and 2) the payback, being how quickly an investment is repaid by its benefits.

The beauty of the business case method of pricing for value is it applies to both goods and services. Whatever you’re selling (or buying), focus on not just the benefits, but the benefit factor. If your solution yields benefits worth X times its cost to your customer, then sell “X”. Downplay the cost and emphasise the factor of benefits. Here’s the crux: when X beats your customer’s expectations of X, getting a buyer to “Yes” is really a no-brainer. Or put another way, how could your prospective client afford to say “No”?

In a follow-up conversation months later, Maria affirmed that her business case technique was vindicated by a wildly successful income stream. And there was an unintended benefit neither of us expected: she could maintain a small client base who were more discerning and who, she felt, truly valued her work. Ironically, Maria’s success reinforced her delight with my price for coaching – the benefits she enjoyed far outweighed the cost!

Think about it: if you want to price at the top end of your market, you need to sell the business case so that you don’t compete on price, you compete on value.

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