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How to Get Your Pricing Right – Part 2

In the Part 1 of How to Get Your Pricing Right we looked at knowing your numbers, two types of margin and value. In Part 2 we will look at the two types of pricing models and the value curve to consider when it comes to pricing.

See: How to Get Your Pricing Right – Part 1

When it comes to price, we either price to solve somebody’s pain or we price for a delight that we’re offering. If I look at my business, I’m not offering too much delight, so we generally price to solve people’s pains and this is common for most B2B (business to business) businesses.

The value curve

In my workshops I demonstrate how value declines with what I call the value curve. The first stage of the value curve is the education of your client base or the marketplace on what you do. Educate the customers about the kind of pain you’re solving or can solve for them, this gives them a reason to seek you out.

The second stage of the value curve is when clients need something fixed, or something done. This is when they then feel they need your services and when your value starts to increase. If you can educate your client that you’ve got the answer to their pain, that’s what I call the peak of the value curve. That point in time, is the best time to negotiate your price and terms with your clients or customers.

Unfortunately, what usually happens at this point in time is a price or a quote is created but we may not discuss the terms. The work then gets completed and the invoice sent, because the clients need has been met and the work has been delivered. You are now left waiting for payment. This is where value curve starts to diminish because the clients need for you is no longer there. In some instances, the client will delay paying your invoice as you’re no longer at their front of mind so now you, the business owner, has the need!

Negotiate early

The key in this situation is to negotiate not only your price but also your payment terms early on. When the client sees your value and that you can address their pain points use that opportunity to negotiate but don’t forget to discuss the terms.

Pricing is one of the hardest decision you will have to make

Overall, when it comes to pricing you need to understand it impacts everything you do in your business, which is why it is such a hard decision.

If you need further advice on how to get your pricing right, the SP Solutions team of friendly advisors and accountants can help. Arrange a free business consultation with us today!