What is the right price for your product or service? Most small business owners struggle with this question, because they confuse the cost of producing the product with the value it brings to the customer.
When it comes to establishing a price for your goods or services, the value of your product has absolutely nothing to do with production cost. The value is based on how much you help clients save, increase, reduce or improve. If you can quantify these benefits, then you have a foundation for establishing an appropriate price for your goods or services provided by your small business.
It is All About Value
Think about your last software purchase. You opened an attractive box which contained a CD and a small manual. There was less than $10 worth of material in the box, and yet you may have paid $300, $500 or even $1,000 for the software.
You paid a premium, well above production cost, because of the need the software fulfilled and the benefits it would provide.
Calculate Your Value
The same is true for your product or service. How much value do you deliver? Use these questions to build your value:
- How much can my product save my customer? Savings may be in time, money or effort.
- How much can my product earn for my customer? Can you help them increase their income; directly or indirectly? Does it create a foundation for future opportunities or establish valuable personal relationships?
- What intangible benefits might customers realize, and is it possible to quantify these benefits? Will your product improve their abilities, confidence, appearance or peace of mind?
Focus on the Benefits
Customers buy the benefits, the solutions to their problems. If you can associate a dollar value with specific benefits, you have a powerful message to include in your marketing material and a solid foundation to charge a premium price for your product.