When Pricing Sends You Running for Cover,

When Pricing Sends You Running for Cover,
Follow the “Better than Gut Pricing Formula”™

Pricing is a tough subject for many, myself included. How much do I charge for my service? How much is my extensive experience which created this service worth? How much profit should I receive or need to receive?

Follow along as I drive through these and other questions to the “Better than Gut Pricing Formula” which you can use today to help with pricing:

W+/- ~ O + P ~ C+/- = just right Pricing for your customers and you™

Service pricing is tricky, so hang on.

To start off, please understand that goods pricing is much easier as you have cost you want to cover and profit you want to gain. Lots of retailers simply use some multiple of cost. Overhead and profit are a part of service pricing but there is more which makes service pricing a little trickier.

When you combine a goods offering with a service we are back to tricky!

Take for example this “Tatiana Canopy Bed”, which one owner “claims enhanced erotic experiences are produced”. Created by an artist and craftsman with years of experience this bed is priced at $200,000.

Clearly in the bed’s case you are paying for the service “experience” side of pricing and not simply the goods. A quick search shows that Wal-Mart has king size bed frames priced at 179 bucks. I can only image what Wal-Mart bed customers say they experience, but with Wal-Mart it is simply goods pricing.

Should the price be what people are willing to pay?

I feel pricing at what you think people will pay can be a little greedy. You may get some customers but most likely it will be few and if the value they get doesn’t match their expectations then you will lose the few customers you have.

You also don’t want your pricing to be too low.

Recently I heard a story from an entrepreneur who sold two companies in the low millions and he had some views on pricing. He suggested that you double your existing pricing and see what happens. If nothing happens he says you should double them again. And so on… until something happens. I don’t recommend this approach but it does highlight that some pricing does start off too low.

Lots of services are priced too low which can cause many adverse effects.

First, there is the saying “you get what you paid for”. This refers to perceived value. You could provide a fantastic service based on years of experience but if you are priced too low potential customers may think your offering doesn’t provide the value they are looking for.

Second, if your pricing is too low you may not actually be providing the best service you can as the value to you isn’t enough. You may think, “Ah, that customer is ONLY paying $X, they can wait a little”. This is a quick way to lose customers.

Third and most important, you need profit to survive and grow. If you don’t have enough built into your pricing you won’t be around for the long run.

You need to find that just right pricing for your customers and you!

First you will want to take a look at your Overhead to create and provide the service. In some cases it may be very little but it is something. Let’s call this “O”.

Next I have discovered that asking yourself what you would be Willing to pay for the service you are offering is a good way to find a starting number. We will call this “W”.

For your Profit you will have to think a little longer term to determine what you will need to accomplish your goals and build a safety net along the way. We will call this “P”.

Now for the critical piece. Look to the market for other services and what you pay or would pay for that service. Don’t look to similar services as you may tend to think they are right with their pricing and they may not be. Looking to other services can help you determine perceived value a little better and take your own biases out of the equation.

For example, to price my website “Go Digital” packages I looked at other business tools people pay for in their business. Something which many business people, including myself, pay for every month is a cell phone. Now although there are many cheaper website offerings on the market, I know that I will provide more value to a business with my website packages then a cell phone. So I took the cell phone pricing into account and put it into the equation. Let’s call this “C” for Comparable different services.

So here is the “Better than Gut Pricing Formula”!

W+/- ~ O + P ~ C+/- = just right Pricing for your customers and you™


I call this, the “Better than Gut Pricing Formula”. This formula should be a little better than just going with gut feel pricing and is a good place to start or to use to review your current pricing!

So, your just right pricing is what you are willing to pay, plus or minus a little, should be approximately equal to your overhead plus profit and be approximately equal to your comparable, plus or minus a little.

So for my website “GO Digital” packages they are priced from $79 to $149 a month and provide much more value than a monthly cellphone bill but also provide me with the O+P which enables me to provide the best service I can to my customers.

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