- One of the most important and one of the most critical questions you have to ask yourself
as an entrepreneur is how much do you charge for
your product or your service. Now, when it comes to pricing it's such an important decision because it affects your marketing. Done properly, pricing could
also be a marketing strategy. So today, I'm gonna give you
not one, not two, not five. Seven pricing strategies. So then from now on, you know exactly how you should price your product or your service. You see when you are not charging enough, so let's say, you price too low, you're not making a profit,
you're not making money. When you price too high, then maybe you're not getting customers, you're not getting enough
volume so you won't grow. So there's that fine balance to just the right type of pricing strategy could change everything. Pricing strategy number one,
price to your competition. That means find out what
your competitors are charging and then maybe you
charge kind of the same. Let's say, they sell
this product for $100, then you'll say, "Okay, I'll
sell mine for also $100." Now, sometimes, I also see entrepreneurs what they do is they would
take the the average prices of the, let's say, three top competitors, and then they would just add
it together and divide it up. That also, I've seen that before. Price to your competition. Now, there is some
industries, in some cases, that might be okay. You want to be competitive, right? Especially if you are in a what I call, a commodity kind of a business. That means your customers, they are shopping for the best price. So by having a price that's maybe 5%, 10%
higher than everybody else within your industry
that might be hurting you because your customer's like, "Hey, you know what, you charge $100. "I talked to your competitor, "your competitor only charges 90 or 95." Now, unless you've done
your proper marketing or you know how to position yourself, that might be a difficult
objection to overcome. So price to your competition. Now there's a downside to this. That means you are always reacting, right. You're always reacting to what
your competitors are doing. They bump up their price,
you bump up your price. They lower their price,
you lower your price. You're always reacting to what
your competitors are doing. If you want to be a leader, ideally you want to play offense. We want to be the one that's leading. We want to be the one
that's dictating the terms, dictating the price in the marketplace so others follow versus you follow others. Does that make sense? Pricing strategy number
two, price to pay the bills. I call this the break-even strategy. What it means is you price it enough so that you just break even. It covers your overhead,
it covers your cost. Well, that might be good in
the beginning in some cases that you are maybe
entering a new marketplace. You're testing things. You're saying, "Hey, you know what, "all I want to do is just to break even. "I just want to test the waters. "See how the marketplace
reacts to my offer." It's possible. Or sometimes, you gotta use
it very carefully, right. Otherwise, you'll go bankrupt doing this. 'Cause you're not making a profit. Is you are pricing, using
the break-even strategy to acquire a large volume of customers. Sometimes I call that the
self-liquidating offers. Meaning this is for your
low-ticket offer, on the front end. You price it, just want to break even. If I'm selling a book, I don't make money from selling the book, but it's just to break even. That's fine, because
that's what a book costs. It's $20, right? So you sell the book, similar price. But you know all the
profits, all the wealth comes from the follow-up offers. So you know all the profits, all the wealth comes from afterwards. The follow-up. What you offer to the customers
who have bought your book. That's what we want to do. Is this making sense? Strategy number three,
and that is price to time. This is probably one of the
most common pricing models. A lot of people do this. Lawyers, professionals,
accountants use this a lot. They charge per hour
or they charge per day or charge per week, or
charge even per month. That's kind of like a retainer model. Price to time. How much time am I spending
on this particular task? How much time am I spending
on this project, right? And that's how I would charge. So they charge $20, $30, $50. Lawyers, $100, $200, $500 per hour. Price to time. Now, this model is very, very common but to me, personally, I think this model is getting out of date. As we are now transitioning
from the job economy to what I call skill economy, now companies and people,
they are paying for results. They much prefer to pay for results. And here's what I believe. When you price to time, the problem with that
model is the relationship that you have between you and your client, that relationship is always,
there's a conflict of interest. What I mean by that. Okay, let's say you charge
$50 per hour for what you do. Okay. And you bill them $50 per hour. And this is gonna take you 10 hours. And you bill them $500. Okay, that's one thing. But let's say you could get
this done in eight hours. Now, be honest. Are you gonna bill them eight or 10 hours? Even if you could get
it done in eight hours, or you're gonna get it
done within eight hours. Because the relationship is, the longer it takes for
you to finish something, the more money you make. Versus from the client's perspective, I want to get this done as
efficiently, as fast as possible. But yet, I'm paying for time. So how does this work? This is always, this is
a conflict of interest. You want to make as
much money as possible. They want you to get it done
for as little time as possible. So price to time, and there's a time and place for this, but I don't believe in
that so much anymore because the whole model of
back in the industrial age, clock in and clock out. No. I don't believe in that. Here's what I believe in. No fee is too high for success and almost any fee is
too high for failure. When your clients are paying you, they're paying for results. When can we get this done? And shouldn't they be rewarded
if they can get it done in five hours instead of eight hours? If you can get it done faster,
better, more efficiently, why shouldn't they be rewarded? Why would I have to pay more for you to drag the projects longer? It makes no sense. But it is a very common model and still a lot of people use it. If you want to use it that
way, that's fine, too. Price to time. Pricing strategy number
four, price to cost plus. Now this is very common in, let's say in the construction business. So, on the surface, very logical. So this is gonna cost how
much to get this project done? Let's say this project's
gonna cost a million dollars? That's the cost, right? And then you'll just add
a 10, 15% mark up on that. Let's say I'm selling
this item, it's $10,000. I'm just gonna add my
mark up, my 15%, right. That's fine, that's one way to do it. Now you see this, again, very
common in interior design and construction and a lot
of different industries. Now what's the problem with this model? It's very a common model. But same thing with the
price to time model, it's something that has
been around a long time, it's logical but, again, they are getting paid based
on spending more money. So if I'm a contractor, let's say, and I know this project with
materials and everything is gonna cost a million dollars. And I'm gonna earn my
mark up on them, my 15%. 150K. Now if there are ways
that I could save money, if I can use materials that are better but actually cost less and I get the whole thing
done, maybe $800,000. Now most contractors, not saying all, but most contractors will think, "Well, do I really want
to get it done for $800K "because now I make less money "doing the same amount of work? "Or is it in my kind of
self interest, best interest "to spend as much money as possible?" From the client's perspective
on the other hand, the more money that you spend, the more expensive the materials, the more expensive the labor,
the more money that you make. From the client's perspective,
it's the opposite. How do you get the best product, how do you get the best outcome for the least amount of money? Again, it's conflict of interest. But very, very common, price to cost plus. Now, let's say if I am
building a building, I'm building an office. I can tell you that's not
the model I would strive for. I would do something that's
very completely different. Example, I would negotiate
with the contractor, this is what Dan Lok would do, I would have a very clear
budget and I would say, "Here's the budget, right,
let's say a million dollars, ok" But here's what I would do. Out of this million dollars, chances are you're gonna maybe 150K. I'm more than happy to pay 150K. But if you could save me money, the two things I look for, if you can get it done for $800K, you're smart, I'm gonna give you a bonus. I'm not gonna pay you $150, I'm gonna pay you
another $20,000, $30,000. Whatever it might be, depends
on whatever the project is. Second thing, KPI would have is, if you can get it done
on time or even early, I'm gonna pay you another bonus for the result that you produce. So now then we're on the same page. Right, you follow what I'm saying? Now we're on the same page. So you and I, we're thinking
about the same thing. We're focused on the same thing. Have the same goal. To get it done, get the
project done on time or early. You get compensated for that. To get it done below the
budget and save money, you're getting compensated for that. You see how that works? So the contractor that takes on this deal knows I am results focused. We're on the same page. He doesn't need to find
ways to cut corners, or try to mark up stuff,
or materials and all that. No. It's in his best interest
to work on my behalf to lower the cost, to
get a great product done but at a lower cost, timely fashion. That's what I would do. But again, you know, that's one pricing model that's out there. That's pretty common. Pricing strategy number five, and that is price to the package. Now I like this one. I use this one a lot. It means that you are creating an offer. You're creating a package. And simply, let's say the package, the total value is worth $10,000. And you're only charging your
customers $1,000 or $2,000. They're only paying a fraction
of what the entire value, the package is worth. I like this a lot. First of all, it makes
the offer irresistible. Number two, if you want to increase price, all I need to do is how could I increase the
value that I deliver? And I like to use a general rule of thumb and I'm giving that to you. I call that the one to 10. Meaning for, let's say for
an educational product, for $1,000 I charge, I want to deliver at least
$10,000 worth of value. If I want to charge $2,000, I want to deliver at least
$20,000 worth of value. Now although some of those products, some of the bonuses it could
be digital products, right? That is instant access. It actually doesn't cost me
a lot to deliver that value which is great 'cause it's scalable. But at the same time the value is there. The value, it's real value,
this is how much it would cost if they buy it from different sources. So that's very powerful. So price to the package. Just think about how you can
apply this in your business. Versus just selling the
widget, the product, the whatever that you're selling, how can you package in a
way that is attractive? Let me give you another example. Let's say you are selling
website development. Instead of saying, "Hey, you know what, "I'm gonna charge you $100 an
hour to design your website." You see how that's like, "well,
how long it's gonna take? "Well, it's gonna take
me, you know, 100 hours." "Okay, great, I'm gonna
pay you 100 hours." Versus package. So, this website development
package we are going to design let's say a 10 page website for you. And we're gonna also
set up a blog for you. And we're gonna create also
20 landing pages for you. We are gonna create 30
email follow-ups for you so that you can convert those
leads into sales, right. I convert leads. So you see how it's a package? Now the whole thing if you
buy this, and you buy this and you buy this, you buy
this and you buy this, all separately, it's gonna be $50,000. I'm just making this up, $50,000. But if you buy the whole
thing from us right now, as a sign up, as a client today, it's gonna be $20,000. Now why you giving them that? So you may be thinking, "Well Dan aren't I
giving them a discount?" You're not giving a discount. You price the package. You know this is the
package you put together and you offer a more complete solution. So it's more attractive. 'Cause you're thinking
on the client's behalf. You're thinking ahead. Say, "Hey, you know what? "We could build a website, "but won't you be needing some
landing pages down the road? "Won't you be needing
some emails down the road? "Won't you be needing all these things?" "Oh, I never thought of that." So, why don't we put together a package with price according to that? I like this model a lot. Pricing strategy number six, and that is price to positioning. What kind of positions you
have in the marketplace? If you're the leading
authority in your marketplace, you can charge a lot more money. Now most people do a lot of
sales but they don't understand how to do positioning. How do you position yourself
as the go-to person, the go-to brand for
whatever it is that you do? Right? So let me give you an example. Let's say when you understand the power of supply and demand. So if you go to Clarity right now, you see on the Clarity site, my hourly rate is $10,000 US per hour. 10K. Now why would someone pay me 10K? To consult with them on an hourly basis? That's a lot of money. Supply and demand. Supply and demand. When you understand basic economics, if you have a lot of demand, a lot of demand and you
have very little supply, and supply in this case is my time, we only have 24 hours a day. You can now charge a lot more money. Because there's a finite amount of supply. You know there's a lot of premium products out there in the marketplace, very often a lot of
demand, limited supply. So ask yourself how you could
use this to your advantage. How could you create a lot
more demand for what you do, what you offer, what you sell? And then what you want to do is you want to restrict the supply. Just like the diamond industry. Do you know there's actually a ton of diamonds that's out there? But the diamond industry is smart enough, they know if they flood the
market with so much supply, then the value of diamond
would go down dramatically. So they restrict the supply
and they drive up the demand. In some cases, they
manufacture the demand. So then diamonds are way more valuable. But keep in mind, that's
priced to positioning. That's all that is. It's price to positioning. Pricing strategy number
seven, price to value. This is my go-to. This is my favorite because that's how I like
to buy things as well. That's how I like to
pay for things as well. Price to value. If I'm paying for results, I would be more than happy
to pay a premium for results. I don't care about time,
I don't care about effort, I care about results. So if it's a project and I
pay certain amount of money, the project gets done,
I'm more than happy. But price to value, it means that there's no
ceiling to your income. So let me give an example. Let's say you run a consulting firm. You do business consulting. Instead of charging the clients for, "I'm gonna charge you X
amount of dollars per hour." Not very compelling, not very enticing because the client's success or failure's got nothing to do with you. If they actually get more results, they generate more revenue, they pay the same amount of money. If they get no results,
you still get paid. Well that's not good. That means your client's
taking on all the risk and you are getting all the rewards. Or, you can price it in
such a way, price to value. Let's say your client is
doing a million dollars a year in revenue right now, that's the base. You'll come in and say, "You
know what, I can help you. "I am the world's best consultant
on this particular topic. "I can help you get more sales, "get more customers, get more revenue. "But whatever you're doing
right now, the one million, "we're not gonna touch
that, that's the base. "But let's say in the next three years, "that through working with me. "Now I'm gonna put some systems in place. "I could help you go from one million "to five million dollars
in the next three years. "We're gonna increase
your revenue by 500%, "that's our goal, and that's your goal. "From here to here. "The one million we don't
count, but the four million "that I've been able to help
you gain in the marketplace, "without me you wouldn't
have had that kind of growth. "Out of four million if
I could help you do that, "would you be comfortable of paying me "a small percentage of that?" It could be, I don't know, 5%,
10%, whatever the number is. Only on the increase, the four million. See, now that's price to value. Now what if you could
only help this client to get to three million? You get paid a little bit less, you get compensated a little bit less. Or you help them get to 10 million. You hit it out of the park, right. It's a home run. Great, you get paid more. See now, your interest and
your client's interest, it's aligned. And also that means that
there's no ceiling to income. It also means your client knows you're not gonna nickel and dime. You're not gonna nickel and dime him. Meaning, "Oh, yeah, we did this much "and I'm gonna charge you, "I'm gonna invoice you for
another three hours of work." That's bullshit. We only care about results. If you could go from one
million to five million doing this much work,
the client doesn't care. You want to go from here to
here, you do this much work, the client doesn't care, either. So now you're working smart. Now you're not getting paid based on time, you're getting paid by what you bring, what value you bring to their time. And maybe, instead of
spending this much time, you only need to spend a couple
hours a week on the project. As long as you get the results. Or you can simply make an introduction, "Hey, you know what, your
business doing a million, "I have another client here, "that I know would be a perfect fit. "Why don't you guys form
a strategic alliance "and do some business in between?" And you make the introduction. And from there you bring in a couple extra million of
revenue to their business. How much is that worth to this client? A lot. Has nothing to do with how
much time you put into it. Has to do with this. That's priced to value. You see how it changes the
way you look at things? It changes the way that you deliver value. It also changes how fast
you want to deliver value. You want to deliver value as
much and as fast as possible. This is my favorite model. Price to value. Now depends on what you sell. Comment below, let me
know what pricing model you are using right now. What pricing strategy
you are using right now. Now, there's no black and white. Sometimes within my business, my time, Clarity, $10,000 per hour. That's priced to time. That's fine. Price to positioning, price to value. Maybe you do a hybrid model, a combination of these
models, these strategies. Or maybe front end you do
price to, to break even. But then, or price to your competitors. But then on the backend
you have some other models, maybe a price to value. That's perfectly fine as well. But what I'm saying is, you
want to spend some time on this. This shouldn't be done
so, just like, half-ass. This should be done very strategically.
