The Pricing Newsletter

November 2019 issue

Hello Pricers,

Welcome to the November edition of the Pricing & Monetization Newsletter!

November can be an especially confusing time for business owners - and not just because shoppers are expecting Black Friday sales. November is just plain weird.

Be careful out there, and be sure to price with caution!

Pricing Question from a Reader

Today's question comes from reader R.N.

I'm starting a service business and am trying to figure out my pricing. As long as I'm charging less than it would cost for buyers to perform the work themselves, my offering will be an instant buy, right?

According to traditional economics textbooks, you're clearly on the right track.

Your experience in the real world, however, might differ.

Being a Perfect Substitute Can Be Dangerous

I think we need to address one of your underlying assumptions.

Very rarely are what you are selling and what customers are able to do for themselves a one-for-one match. In most cases, there will be differences in quality, scope, immediacy, and a variety of other factors. As a result, focusing only on the difference in pricing might be a sub-optimal approach to pitching your services.

If, on the other hand, your offering is an exact match to what a potential customer could perform for himself, you likely have bigger problems. The reason for this is that you're probably selling a commodity. The future for small vendors of commoditized products is usually not very profitable, and, over the long term, is fraught with the risk that someone else could come along later and undercut you.

Pricing Power

It's been a while since I've mentioned my DUMB model, but knowing how your offering scores against it will be of great importance to your analysis.

Cheaper Isn't Always Necessary

When you focus on making your products cheaper, you often lose sight of one important fact: cheaper isn't the only approach to instant buy. Sometimes you can charge far more than it would cost for a customer to perform the work himself - and make a fortune in the process.

Many people are perfectly capable of painting their own houses, mowing their own lawns, and unclogging their own toilets. Nevertheless, legions of these able individuals pay a premium to outsource such labors. The buyers would rather not get their hands dirty or spend their time and attention on such unpleasant tasks. Others may simply lack the confidence required to perform the job.

Sometimes buyers pay little attention to a vendor's pricing at all. Those who are busy will often be forced to focus on opportunity costs instead. If a firm needs to tackle two important tasks, but only has the internal resources to complete one of them, its managers may be willing to pay a tidy sum for a third-party to complete the other job.

Conclusion

Telling potential buyers that it's cheaper to outsource your tasks to us is barely a step removed from competing on price. It's almost always more profitable to compete on superiority of outcome rather than on low a price.

As any salesman will tell you, a focus away from low, low prices allows providers to charge premium prices for their offerings.

Questions come from readers like you. If you'd like your questions answered, send them my way.

Pricing in the News

From the Blog Archives

Notable Pricing Quote

"Money often costs too much." -- Ralph Waldo Emerson

Shameless Commercial Plug

I'm always on the hunt for new subscribers! If one of your friends or coworkers needs help with his business, tell him to subscribe to this newsletter.