Tuesday, July 26, 2005

Value vs. Cost

Pricing. What a topic.

The amount to charge for your product or service is something that keeps seasoned executives awake at night. Price too low, you leave money (profit) behind. Price too high and you may not get any customers to buy. Settle in the middle and you are just an "average" supplier. If your industry becomes viewed as a commodity, then pricing is even more important. Margins become low and nobody wins.

When I worked inside a prestigious law firm, some attorneys were very focused on their hourly billing rates. They were always complaining that the firm had them priced too high for their clientele. However, I could always find example of lawyers in other firms (who had the same practice area) who were charging even higher rates, and still getting new clients. It was not about the money.

There is more to winning the business than price. It is how you position yourself in the marketplace. If you believe that your product is no better than the competition, then price will be your only tool for differentiation. However if you know in your heart that what you have to offer is light years ahead of anything else, then price is not the issue (to you or your clients). You need to have wild passion that is seen by client and prospect. This excitement will help create the perception that you bring more value.

If the client believes that you bring more value, he will happily pay more.

There is a great story in Harry Beckwith's classic book,"Selling the Invisible", that speaks directly to how you have to view yourself in regards to your pricing:
A man was suffering a persistent problem with his house. The floor
squeaked. No matter what he tried, nothing worked. Finally, he called
a carpenter who friends said was a true craftsman.

The craftsman walked into the room and heard the squeak. He set down
his toolbox, pulled out a hammer and nail, and pounded the nail into the floor
with three blows.

The squeak was gone forever. The carpenter pulled out an invoice
slip, on which he wrote the total of $45. Above the total were two line
Hammering, $2
Knowing where to hammer, $43

If this story does not sum up the value of your knowledge, you may never understand.

Have A Great Day.

Thom Singer

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