Pricing is a process that requires customer data
Today’s post is the second in a two part series by guest blogger Erik Grueter. If you missed part 1, you can read it here.
Once you’ve figured out your value metric and revenue model, you’ll need to figure out the actual number to put on the page. There are a number of ways to determine your customer’s willingness to pay, but they all involve actual customer input. Things like cost plus pricing or competitor based pricing can be beneficial. Yet, the only person who will tell you how much you’re actually worth is your customer.
So, where do you start? Well, if you’re already selling something, then your closed-won and closed-lost rates are great starting lines. People are buying or choosing not to buy based on your price already, so you have some validation. An easier way is just to ask them. Yes, ask them. Customers are more than willing to engage you in a value discussion, as long as you ask.
To make things a bit more scientific, consider utilizing a value based pricing research methodology by conducting price laddering or van westendorp studies. Price laddering is exactly how it sounds, where you ask a customer if they’re willing to pay $X for a product, and if they say yes, you ask them if they’re willing to pay $X+1. The process goes until the customer says no. Van Westendorp studies ask the customer about their price sensitivity in ranges, allowing you get to a better pinpoint of where they’re willing to pay. Check out the VW output below directly from our price optimization software.
All methods have their drawbacks, but the big thing to keep in mind is that in the case of pricing, some data is better than no data. As such, you need to keep the discussion open with your customers. Simply put, by pricing your product based on its value to your customer, you are likely to increase profits and customer satisfaction.
To summarize, pricing is a process that requires data. It’s the most important aspect of your business and can be exceptionally confusing if you don’t follow the right path. To learn more check out our Pricing Strategy ebook or sign up for our free Pricing Page Bootcamp course. Both expand on the ideas we discussed above and will get you closer to the right track to capturing all the cash you’re leaving on the table.