Psychology of pricing may not be something you’ve often considered. But now is the time. Here’s why…
Do you feel like crawling back into bed every time you think about your pricing strategy? Whether you are just starting to build your business, or have been in business for a while, knowing how to price your products or services can be a headache. For many female entrepreneurs, pricing comes with the baggage of imposter syndrome underlined by a lack of confidence, and the fear of rejection and failure. Invariably, this leads to pricing too high or too low.
Finding that sweet spot between being confident with your offer, attracting as many clients as possible while still giving yourself enough time to grow sustainably, is your genius pricing zone. It is also the place in your business where you feel comfortable and confident enough to talk about your offer and know how to incentivize your clients to buy from you.
You enter the genius pricing zone when you know your worth, what you are offering, your competition and what your ideal client looks like. When you enter this zone, you’re better able and equipped to navigate the psychology of pricing.
Firstly, the psychology of pricing means understanding how numbers affect your potential client and, secondly, your own relationship with numbers and money.
Let’s start with the less complicated area – how numbers persuade your clients to buy from you.
How the Six Principles of Persuasion Impact the Psychology of Pricing:
- Reciprocity: It is human nature to want to offer something when something is received. Reciprocity in pricing means offering something valuable to current or potential customers, in return for them performing an action that helps your business. Freebies, coupons and giveaways are good ways to build reciprocity.
- Commitment & Consistency: When you do what you promise in the way you promise, consistently, this builds trust. Clients will invariably return if they feel they can trust you.
- Social Proof: This tells people that you are legit and trustworthy. Social proof includes positive comments about you, your company or product. Posting testimonials on your website is social proof.
- Authority: Show customers and clients that you are an expert in your field. When you speak with authority about a topic or field, potential customers will be drawn to you.
- Liking: It’s a lot easier for us to say yes to the requests of people we know and like. Tupperware parties are a great example of how companies use the power of liking.
- Scarcity: Who doesn’t want to feel special? By creating an atmosphere of scarcity, potential clients feel like they are one of few people to have access to your product. Putting a time-cap on a promotion easily creates an atmosphere of scarcity.
Simple Psychology of Pricing Tips
First, never end a price with a round number. Instead of offering an ebook for $20, make it $19.98. Research has shown that it actually doesn’t matter if it is an 8, 9 or 7 at the end. Secondly, start with a high price and a lower special that is only valid for 24 hours. Saying no once is difficult for most people, saying no twice even more so. If you give a lower offer, reciprocity and scarcity rule. By providing a high offer followed by a lower offer, you give your client the opportunity for a concession, because as humans, we generally want to collaborate and support others. Use your authority to justify your pricing. This principle is straightforward.
(Read more about the six principles of persuasion in Influence: The psychology of persuasion by Robert B. Cialdini)
How to Create Your Genius Pricing Zone in Four Steps Using the Psychology of Pricing
Master Your Money Mindset
The first step towards a sustainable and effective pricing strategy is your money mindset. Your money mindset is one of the most important pillars of your business. An important exercise I do with my clients is to figure out their relationship with money. This includes: first, understanding what is holding you back when it comes to money and resolving existing issues towards money. If you’re unable to resolve past patterns influenced by your parents, for instance, it is advisable to work with a financial coach or a financial psychologist. I’ve seen clients make huge leaps after resolving old patterns and understanding that money is a medium of exchange, not a measure of achievements.
Develop a Clear Purpose
Secondly, developing a clear WHY, and purpose is essential for every pricing strategy. Your purpose dictates the overall strategy of your business. Visualizing and knowing where you want to be in a couple of months or years helps you build the courage and confidence to ask for what you want.
Address Imposter Syndrome
Thirdly, addressing the imposter syndrome. When you look at your prices, what do you feel? What thoughts do you have? Are you afraid that no one will want to pay for your services or buy your products? Do you feel like you are not good enough to have a high ticket offer? Or that you haven’t been in business long enough to have a price tag that actually allows you to live the life you want to live? If any of these questions cross your mind, your first step is to tackle your imposter syndrome. You want to be able to develop a right pricing structure, even if you don’t fully believe in yourself yet.
Develop a Mindset of Abundance
Fourthly, developing a mindset of abundance. What if my clients don’t have enough money to pay for my services? Am I being greedy for having such a high price? My ideal client doesn’t have the money? Or I can’t hire help because I am not making enough money. All these questions are an indication that you have a mindset of scarcity that is actually holding you back. Money is energy, and it is here to flow. I am not saying that you should be comfortable carrying debt around. But rather be comfortable charging a price that reflects the quality of your products or services for your clients. Open yourself up to possibilities and opportunities. Believing that there is enough for all of us literally helps your brain to start seeing abundance.
Own Your Strengths
Lastly, know your strengths and acknowledge your achievements. Especially when it comes to pricing, many of my clients start listing everything they are not good at or haven’t achieved yet; focusing on irrelevant parts of their business. Creatives, in particular, tend to focus on errors in their work. I have photographers pointing out to me regularly what they missed at the last photoshoot, and because of that, they are not willing to raise their prices. Your clients don’t know what they don’t know, but they do know what kind of work they have seen from you and that they want it. Stop searching for your weakness and start focusing on your strengths. The fear of not being good enough, and overpricing, is real for so many. You are not alone. If you are just starting out, you need to create a list with achievements and understand clearly what your skill set is. Clients of mine even place a list with their skills right in front of them and read it out loud on a daily basis. Some of us have to get used to charging for services; reminding of our worth.
Understand Your Expenses for a Sustainable Pricing Structure
Understand your expenses and your quarterly and yearly goals. This is the part where you step aside from your beliefs and feelings. This is the part where your pricing becomes a game of numbers. When you have a grasp on the psychology of pricing, you can take the next step. Once you know your purpose, your strengths and what you are offering, it is time for you to start seeing your numbers as numbers.
Step 1. Make Sure to Understand Your Expenses Clearly.
Take your computer, desk, paper, camera, space, tax accountant, car, any program, application and subscriptions into account.
Step 2. Do Market Research.
There are enough clients for everyone, but it is important for you to understand what the general price structure is of other entrepreneurs. You need to do this for three reasons: first, you don’t want to price yourself too low and be overwhelmed with clients.Second, you don’t want to undermine the prices of your industry, sending the signal that services such as yours should generally be less expensive. Lastly, you also don’t want to price yourself too high and lose potential clients. The trick here is to have a realistic understanding of your skills, experiences and acknowledge your degrees (accreditation). Placing these aspects into perspective will allow you to set a price based on visible accomplishments and realistic market circumstances.
Step 3. Attract the Right Clients.
One of the most difficult lessons that many of my clients and I myself had to learn is that a lower price often attracts the most demanding and difficult clients. Just because I am paying less, doesn’t mean that I am willing to receive less service. Secondly, clients that try to negotiate you down or choose the lowest pricing point that you have don’t value your work as much as it should be valued. Partially because subconsciously you don’t value your own work enough. Knowing your values, norms and purpose will not only allow you to run your business better; it will enable you to set a price structure that will attract the right clients.
Step 4. Create Scarcity or “The Rule of Few” Scarcity Principle.
People generally want what they can’t have. That’s why millions of people around the world wait in cold weather for the release of the iPhone or even sleep in front of the store to be the first ones to own a new pair of Jordans. Black Friday works so well because you know that you want to be able to get this deal again for at least another year. Not necessarily because it is such a great deal.
And honestly how often have you received a newsletter from your favorite brand just to announce two weeks after Black Friday that everything is off not just 40% off, but 50% off. One way of ensuring that your client has the feeling of receiving the value that they paid for is creating the feeling of scarcity. Having a waitlist for your services is a great way to accomplish this.
Step 5. Reflect the Quality of Service.
In Germany, we have the saying: “Who buys cheap, buys twice.” If you are offering a high-quality service, why would you sell it for under value? Generally, as humans, we feel that we receive better quality when we pay more. Also, clients that are willing to pay more don’t choose you from a place of scarcity. They chose you from a place of abundance which positively impacts your work relationship.
Here’s your next step toward implementing the psychology of pricing and becoming comfortable with your pricing strategy.
Grab your free pricing planning workbook! Walk yourself through developing a mindset of abundance that will allow you to arrive in your pricing genius zone and create a pricing strategy that allows you to grow your business sustainably.