Pulling a price out of your butt doesn’t work. You’d think that would be obvious, right? Yet every day I see people (usually in Facebook groups, because who actually sees people face to face anymore?) who are charging an arbitrary price for their product or service that has little or nothing to do with the actual value they deliver.
It’s much easier to price hard products than services or digital products. Various retail segments have different pricing formulas, usually three times the wholesale cost. But in the case of big ticket items it can be a smaller multiplier. Grocery stores run on slim margins. The markup on coffee is insane. The point is there are guidelines and industry standards available to substantiate your pricing decisions for hard products.
But what should you charge for the digital course you have just developed? People who teach course creation will give you pricing anywhere from $97 to $5,000. So, that’s helpful. (Not.) Do you value the course based on quantity, i.e., the amount content you have—hours of videos, a manual, worksheets? Does it also involve private or group coaching sessions? Ongoing customer service? Do you price it based on how much money someone can earn if they successfully complete the course? Or on the scarcity or level of the information? On the topic itself? More popular topics command higher prices—unless the market is flooded with information on that topic.
You can start to see why deciding on a price isn’t all that simple.
Your pricing also depends on your own expertise and, sadly, perceived expertise. There are plenty of people who have been working in the trenches of various fields that you have never heard of. They have more knowledge, experience, and skills than that good-looking, young marketer with the slick videos. But guess who’s making the big bucks? Right or wrong, your ability to market yourself has a direct effect on your pricing.
I charge $275 for an hour-long private consultation. In the grand pantheon of coaches and consultants, that price is fairly average and some would tell me it’s too low. (For the record, my brother just choked on his coffee. You’re never a hero in your own home town.) Am I worth $275 an hour? In order to sleep at night, I make sure I am worth more than $275 an hour. If I can save you a minimum of $600 or a week’s worth of time, then yes, I’m worth it. If all I do is give you platitudes and tell you things you already know, then the answer is no. I also have to be the right fit for you. If you want someone just to listen, sympathize, and hold your hand, I’m probably not your person, no matter what you pay me. If you want some off the wall brainstorming and a list of action items to move yourself forward, I’m your gal.
My mechanic, Steve, charges based on parts and labor. In the auto repair industry, there’s a book that tells how long a repair job should take. (Longer for Audis, I can tell you that right now.) He multiplies his hourly rate by the projected hours, adds on parts and tax, and he’s got a fair price. I am very sure his hourly rate closely matches the hourly rate of Gregg, whose auto repair shop sits diagonally across the intersection from his shop. I suspect they’ve both been in business about the same length of time. I’m willing to bet that over the years they have helped each other out. They may be competitors, but they both have plenty of business. There’s enough demand to go around.
I check my competitors’ pricing all the time. I’m sure they check mine. When I launch a book, I check to see what other books in that category are priced at, particularly the books from traditional publishing houses. That tells me what the market is. If I’m writing a debut horror novel, I’m not going to charge as much for my books as Stephen King does for his. But I’m going to look at his pricing. Then I’m going to look at the bestsellers in the horror category and see what they are selling for. I’m going to take into consideration how established the authors are. I’ll use this information as a guideline when I decide on my pricing. But I’m starting with some very good, real world parameters.
Industry standard is only standard when you have a certain level of knowledge and experience. If you’re new to a field, you can’t expect to command the same prices as someone who has been working (and building a reputation) for a decade or longer. I’m all about encouraging people to follow their dreams, but I also know starting that journey with a solid grounding in reality makes it more likely that you will achieve that dream. Self awareness, being able to properly assess your skills and value, is key to hitting the sweet spot in your pricing. Women tend to undervalue their services (less of a problem with younger women, so YAY). Men tend to ask for what they want without being shy or modest. It’s a cultural thing. If you’re aware of it, you can correct if necessary. Hint: I just made you aware of it.
I run through any number of factors when I am pricing something, whether it’s a new book for myself or a client, a course, or speaking fees.
Pricing Factors I Consider:
- The value of the results you deliver
- The economic status of your target market – can they afford this?
- The scarcity or uniqueness of the information or services
- The level or detail of the information or services you provide
- Your time and effort
- How you are perceived in the marketplace
- What other people in your niche and at your level are charging
You are part of a dynamic marketplace. With the internet, I can look at your offer and price, then, without moving from my chair and with very little effort, search on similar products and evaluate other offers compared to yours. It doesn’t mean I’m shopping on price. It does mean that I am going to investigate my options.
We don’t sell in a vacuum which is why pulling a price out of your butt doesn’t work. It’s easy to do a little research, check the competition, put in some thinking time, and deliberately price your product or service. If your guiding principle is to make sure you are delivering value far above the asking price, you cannot go wrong.