If you are like most business owners, you fear raising your prices. You are scared of losing business and the loss of opportunities especially in tough economic times and a highly competitive market.
It seems to makes sense, but unfortunately this rationale for keeping prices at current levels is dead wrong.
It is precisely the reason you are losing profit that you should raise prices now.
This is a bold statement, for sure, but it’s true. Here’s why: People’s appetite for certain levels of service and certain levels of experience follow what math whizzes call a ‘power law’. The power law says that if cars are 10 times heavier than boats, there will probably be 10 cars for every 1 boat.
Similarly, if you are selling maintenance agreements for $100 or $1000, one tenth as many will buy the $1000 version. So, you get the same volume from the $1000 version as you do with the $100 version.
This happens nearly every time, so long as the $1000 maintenance agreement represents a quantum leap in perceived value in the minds of the customer.
Why does it work this way? Because in every market, about 5% consists of people for whom price is no object.
Profits are HUGE when you put the right offer in the right way in front of this affluent group of people. What’s particularly fantastic about this group is that their appetite for higher levels of service and convenience is nearly insatiable! It seems you can never satisfy all of the demand, no matter what the cost or how much you produce.
Think I’m losing it? For a minute, just think about a friend you know that always has to have the latest electronic marvel, no matter what it is. How about someone you know who just has to eat at the best restaurants, have the finest wine, and drive the latest hot car.
Follow me here….How about the customer who wants instant service response, the ones who choose your best system and accessories even though it’s overkill for their home or business? They also want the newest remote control capabilities and the best of amenities. I’m sure you know a customer like that.
Now this may not hold true in every market – I don’t know anyone fanatical and passionate about French toast, but I DO know that people are fanatical about the problems that are solved by what you sell.
Markets with fanatical needs and high incomes are great markets to make a living in.
The way you can achieve this is by offering levels of service, raising your pricing and offerings by 5 to 10 times, and start marketing to this group of people. You do this by:
- Selling results, not procedures
- Guaranteeing response times
- Much improved quality and packaging of your services
- Offering private access consultation with outside experts
- Consciously focusing and catering to the customer to whom price is not a primary concern
- Providing ‘all inclusive’ service packages
I use this same strategy in my business. I give away lots of free information in my website, in newsletters, and in emails to thousands of contacts and customers. I offer an expansive range of products and services at various price points, from membership programs at $49, to my ‘Right On, No Bull’ group coaching program at over $24,000 per year. That’s over a 1000:1 range in prices.
Because what we offer exceeds the amount they spend, it creates value. For affluent people, price is what they pay, value is what they receive. When you provide more value than the cost, they will keep coming back for more, and won’t quibble over recurring revenue charges.
When this happens, watch your profits soar.
If you need help selling more recurring revenue agreements to your customers, tell RSS Ray.
Tags: maintenance agreement pricing, price increase, price increases, pricing, pricing best practices, pricing theory, product pricing, service contract pricing
