How to Confidently Raise Prices (and Avoid Discounting)

Back in my engineering days pricing drove me nuts. There was this thing known as a “market rate”—the sort of standard within the industry for what you should charge.

But I didn’t like the standard. It didn’t leave much profit, and it was driven by the firm that was willing to sell their time for less.

And, there’s always someone who will choose to sell for less.

For a long time that really……pissed me off.

What was wrong with them?!!! ?

It took some time, but I finally realized that the market rate had no bearing on what we choose to charge our clients.

In the process, I stumbled upon some well known, yet seldom used principles that lead to better fees.

In this episode, we’ll tackle them.

  • The mindset that leads to higher fees.
  • Why clients complain you’re too expensive and how to respond.
  • How to avoid discounting when clients ask, “Is that the best you can do?”
  • The best way to present your fees.
  • Why bonuses are useful, even in service businesses.

Listen now…

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Transcript

Hey, it’s Steve.

As early as the middle of the tenth century, it’s believed that the Saxon King Edgar kept a yardstick at Winchester as the official standard of measurement in the kingdom of England. A traditional tale tells the story of Henry I who, around the year 1100, decreed that the yard should be the distance from the tip of the king’s nose to the end of his outstretched thumb. It wasn’t until the reign of Richard The Lionheart that the standardization of units of measurement was first documented in England.

In the Assize of Measures in 1196, it was stated that throughout the realm there should be the same yard of the same size and it should be of iron. Later, in 1215, the Magna Carta also attempted to standardize measurements throughout the kingdom, although it concentrated on measures of wine and beer. And this same process of standardizing measurements has gone on throughout history all over the world.

So why is this important to us today? Well, the reason for standard measurements is so that we all have an agreed upon standard upon which we can compare. And this is especially important when we begin to talk about money. However, it gets to be a little bit more complicated when we deal with money.

Today we’re going to look at the three key things that you need to be aware and you need to account for as you look to increase the value and raise your prices so that you can be paid more. In this episode, we’re going to look at how you deal with pricing from three dimensions. First, we’re going to look at how you deal with money and how you think about money because that ultimately will determine how you approach pricing when it comes to pricing your services and your projects. Next, we’re going to look at why clients complain that you’re too expensive and what you can do about it. And then third we’re going to look at how you can avoid discounting so that you don’t end up feeling as though you’ve given away your services for less than you’re worth.

The Mindset Necessary for Higher Fees

So let’s start with how we deal with money, how we think about money. I found that our own thinking about money is generally the first barrier to higher fees. We tend to project our ideas, our beliefs, our own thinking about money onto our prospects. And the way that that sort of translates is if we believe that we’re expensive if we believe maybe we’re a poor value, that will come through. Oftentimes that comes from how we think about the things that we buy ourselves. So if you find yourself looking out and seeing someone who maybe drives a better car or lives in a better house than you, and being a little envious or thinking that that’s frivolous, you’re making a judgment about their perception and use of money. You’re making a judgment about what they deem to be valuable. You’ll tend to then take those same projections and project them out as you price your services.

So one of the first things that you can do to improve how you approach pricing your own services is to begin to let go of those judgments of the way others value things. Just observe what they value without judgment. I think this is a really important habit to get into. When you look at someone who, maybe in the past, you would’ve said spent money frivolously, just observe how they spend money without that judgment attached. When you look at something and you think about your own purchases, and you want to attach a judgment to it, that it’s expensive or that it is cheap, let that judgment go and just observe the pricing.

As you do this, you’ll begin to train yourself so that you let go of these ideas that you tend to project onto your prospects. I find that until you’re able to do that, oftentimes you will dramatically undervalue the services that you offer. You’ll underprice yourself.

Now as you do this, as you go through, as you reprogram your thinking about money and you begin to raise your prices, you may have clients that complain that you’re too expensive. You have to understand that, again, this is a judgment that they’re making. Oftentimes we force them into this judgment. When you hear that you’re too expensive, often what’s happening there is that you’re giving them a price, you’re proposing a fee in a vacuum. I see this happen a lot where you’ve only got one price that you’re offering. In other words, there’s nothing for that prospect to compare to. Unlike all of those systems of measurement that we talked about in the opening, where there’s now an agreed upon standard for distance, whether it’s the foot or the meter or the mile, whether it is a unified value, an agreed-upon value for area, a hectare or an acre, or for weight. Money is different.

Money as a Measure of Value

Money is essentially how we’re going to communicate our own subjective view of value. And yes, there’s somewhat of a standard. There’s somewhat of a standard for what a dollar is worth today. But you’ll notice that dollars trade up and down. Their value goes up and down relative to other currencies. The reason for this is that it is the dollar or any currency is simply our way to communicate the relative value between things. That’s always in flux.

So, what you’ve got to understand, as you approach this idea of pricing, is that unless you set the standard upon which your price should be compared, then your client is going to go out and search for that standard to measure it against. When you let them do that, you lose control of the price comparison. They’re going to get to a sign, a judgment of their own to it. They’re going to get to say, “Well, this project is $25,000. Well, that’s equivalent to a small car.” They’ll look for something outside of the service that you’re offering to try and attach some value to it.

They may compare it to what they have paid in the past. They may compare it to what they’ve paid other service providers in different areas. They may compare it to what they charge themselves. So your first defense against that is to understand that price and value and can only be understood in relation to something else.

How to Use Tiered Pricing to Win Higher Consulting Fees

You’ve got to give yourself that measuring stick. The easiest way to do that is to, in your proposals, never simply give one option. Always give multiple options.

In other words, you put the measuring stick that you want them to measure against in your proposal. In your service offering. Often what this looks like is a low, medium or high option. Most of the time you’re going to look for three options. Sometimes two will work. But you want to give them good, better, best. You want to do that in a very deliberate way.

Most often the option you want them to take is the good option, the middle option, but you’ve got to have a way to anchor that price. The way that you do that is you have a package or an offer that is even more all-encompassing, even higher end, also very profitable for you, and probably very high priced. By doing that, you give them now a comparison. You give them the top end of the range. If you think of it in terms of a yardstick as the standard, you give them the far end of the yardstick to look at. And then the low priced option gives them the near end of the yardstick. Now you’re working on this continuum from low to medium to high. All within this range.

So they know, well, here’s the most it could be. Here’s the least it could be. And here’s this option in the middle that seems to give me the best of both worlds. And you’ve now given them the ability to process all of this in their mind. That’s probably the biggest factor in ending up without a price that you like, or with ending up with price pressure coming back at you and people complaining that it’s too expensive. Because you’re allowing them to go out and compare to other things outside of the service that you’re offering.

As you think about your pricing and think about your packaging, now all you’ve got to do, and it’s very, very simple to do, is think about, okay, for the service that’s going to solve their problem, that’s going to give them everything that they need, that’s my center offer. That’s my middle offer. Now if I made a first-class version of that, if I made the concierge level of that, that is extremely high end, what would that look like and how would I price it so that if they took that one, it would be really profitable for me and really, really valuable for the client. Most of the time, that higher end offer, the value is going to come from the experience that they get through it. Not necessarily by adding more and more and more deliverables. I think that’s a big mistake that many professionals make, is you feel like you’ve got to just pile on the deliverables. But oftentimes it’s more about the experience.

In a service business, are they getting more access to you at that high end? Are they getting quicker access to you at that high end? Are they getting some other perks up there that would be meaningful or be desirable? Again, most people aren’t going to take that high option. So it’s okay to dream a little bit and to put something out there. Just make sure it’s profitable for you.

Then if you go to the other extreme, the low end, the low-end ought to be the bare minimum that they would need to get a result. The bare minimum. And that needs to be priced profitably as well. It needs to be priced, really, fairly close to that middle option that you want them to go after. That middle option should be a no-brainer upgrade from the basic offer. It should give them all of what they need because you don’t want to leave a client short in any area. You want to give them all of what they need. And also give it to them in a way that looks like good value. Now you’ve set yourself up so that they can make this comparison and make it in an educated way.

Identifying the Client’s Cost of Inaction

Now once you’ve done that, now the other big mistake that I see professionals making all the time, when it relates to price, is that when they’re in conversation with a prospect, most of the time they’re pitching. If you’ve done the pre-sell as we’ve described in our guide to pre-selling and on the podcast. If you’ve done the pre-sell right, by the time they’re across the table from you, you shouldn’t be pitching anymore. They should’ve made the first purchase, which is buying you. Getting to the point where they think, okay, he’s my guy. She’s my gal. This is who I’m going with. Now, what’s the deal and does it make sense?

If you’re at that point, now you have a very different conversation. You don’t have to pitch all the time. You actually get to turn the tables and you get to ask questions, which is the way that you should be running a sales conversation anyway. And you should be digging deep to find out, well, if we transform this problem for you, Mister Prospect, what’s that worth? What change does it make? What, if we boil that change down to dollars and cents, what’s the impact of it?

You’ve got to have the client, the prospect, go through that calculation in their head. In fact, you’ve got to continue asking them, even when they tell you, and they will tell you, gee, I don’t know. Then you’ve got to keep asking questions from different angles until they can understand how that value really translates. What it’s really worth to them. If they can’t figure out what it’s worth to them, then you might not have a good prospect.

So your goal is to dig deep, to the point that you can understand what is this worth? If we fix this, it’s going to mean X to you. And as long as your price is some fraction of X, you’ve now again anchored your price, your fee, against a much higher number of what it’s worth. And if you can do it in these two ways, with packaging and having multiple packages, and then anchoring against the real value that the prospect tells you that fixing this is worth, now it’s a much easier conversation about price. So then if they push back and say, “Well, it’s still too expensive.” Say, “Well, I’m a little confused. You just told me that is worth $100,000 to you in the next year if we fix it. And I’m only charging you $10,000. Where else could you take $10,000 and invest it and get a $100,000 return? Is it really worth that?” And push back on them a little bit.

It gives you the ability now to have a full conversation on price rather than the prospect simply telling you, “Well, it’s too expensive.” Or “We’re going to go with a cheaper option.” Or anything like that. When they’re telling you that, you just haven’t done your homework in the sales conversation, most of the time.

So this is your opportunity, with these two pieces, to begin to pull this together and begin to give yourself a much better chance to get the fees that you want to get. The ones that make you happy. The ones that make you profitable, so that you can deliver a service at a really high level for the clients who are going to appreciate it.

All right, so we said there were three things. The third is avoiding discounting. Let’s cover that next.

How to Avoid Discounting

Okay, so you’ve got the client close to the end. And they give you that dreaded question. “Hey, is this the best you could do? Is there anything you could knock off of this?” I hate that question. The first way around that is confidence. Confidence is the antidote to discounting. If you’re confident that there is another opportunity around the corner, you can walk away from a prospect that’s asking for a discount. But you need that confidence to deal with the request.

The way you create that confidence is that you have a system for generating leads. There are lots of systems for generating leads. But you need a system and you need one that’s working, that’s generating that next person around the corner. When you get that request, and you’re confident, then the response is very simple. You simply say, “Well, you know, this is probably the best we can do. If you’re looking for a discount, maybe we’re not a fit. If you don’t really see the value in this, we might not be the right people to help you.” And that’s okay.

What you’ll find when you say something like that, particularly if you say it from a position of power or you’re confident in expressing it, you’ll often quickly find that the prospect backs down right then and there. And they’ll say something, “Oh, yes, yes. I’m sorry. You’re right. I just thought I’d ask.”

“Okay, no harm in asking. This is what we charge. This is how we’re going to fix things for you. We’ve already talked about the value you’re going to get from that. This is a really good deal for you.” You can re-explain all of that. But hold firm that you’re not going to discount. The secret to being able to hold firm is knowing that you’ve got another opportunity right around the corner.

Using Bonuses to Create Added Value

Now we’ve already talked about having multiple packages. One of the easiest ways to do that, and it is one of my favorite ways to avoid discounting, is in that premium package you create bonuses. You use those bonuses to take the attention away from discounting. So, a great example of this is our upcoming book, The Follow-up Formula, which it’s really being built with this model in mind. There are going to be versions of the book. Starting with just the book by itself, but there’ll be a premium version that has bonuses that include templates that people can copy and paste, and blueprints for following up in certain situations. And for some prospects, they’re going to look at that and go, “Well, that’s worth having. In and of itself it’s worth paying more for.” And so they stop thinking about how can I get a discount, and they start looking at, oh I really want this premium option up here.

You can take that same thinking and apply it to services. Particularly as you build out your packages, your service level offerings. You can apply that in there. Make those things really desirable. Really desirable. The thing that would make your service just an over the top success for that client. Make it really, really attractive to them. When you add those things in, now they suddenly focus on what they’re going to get rather than how they’re going to get a lower price.

So those are really the three keys to raising your prices. First, dealing with your thinking about money, as we’ve talked about. Getting all of the garbage in your head around money out of your head. All of the judgments that you have about money and about how other people use it out of your head because you’re going to impact your own pricing. Once you’ve done that, then build a system so that when clients complain that you’re too expensive, that you’ve preempted that. That you’re now not giving them pricing in a vacuum. You’re giving them options so that they have that yardstick to measure your price against. You’re building out those options so that they can choose one based on the value that you’re going to deliver because you’ve had the conversation with them. You’ve identified and pinpointed exactly what this transformation you’re going to create for them is worth to them.

Then finally we talked about how to avoid discounting. Really focusing on making sure that you’re generating leads so that you’re confident that there’s another opportunity coming along right behind this current one. If someone really does push for a discount, that you can walk away. You can say, “Look, maybe we’re not a fit.” And finally using bonuses to create premium packages that get clients focused on these really desirable bonuses. And take their mind off of wanting discounts.

These are some of the best strategies that you can employ to begin today to raise your prices. And I hope they help you.

Announcements

Now let’s take a look at what’s going on around the unstoppable CEO. Last week we did an all-new webinar on how to attract clients without selling, chasing or pestering them. If you missed it, it’s available on demand at unstoppableceo.net/webinar. If you’ve been on one of our webinars over the last year, this is a complete revamping of it. New material. I think you’ll get a lot out of it.

Finally, I mentioned The Follow-up Formula book. It’s not available yet, but if you’d like to be among the first to know when it is available and get early access before the general public, go to unstoppableceo.net/followupformula and you can add yourself to the notification list there. If you have any questions about where to find those links, you can just go to this episode on unstoppableceo.net and they’ll be there in the show notes. Until next week, stay UNSTOPPABLE.