When I was a kid, I didn’t receive a lot of disposable income. Most of the clothes I’ve bought were from local stores or bazars. Yet, there was one store which offered some good discounts. Almost everything was 50 – 60 – 70% discounted. If you bought for $100, you would pay only $50.
So each time there was a major sale, I would buy from them. The problem was that the discounts were so big that it trained me to wait for them. It made no sense for me to purchase anything but the one weekend per month when it was discounted. Years later, I’ve realized that I wasn’t the only one who did this. This store was full during the sale period, empty during the rest so right now, the discounts are year long. They’ve killed their profit margin by giving too many discounts and training their marketplace to wait for them.
Now, discounts for clothing is not rare. Zara offered them some weeks ago too. However, it was for a week or two. These discounts are rare. If I need a pair of jeans, I won’t wait four months to get it.
This relates to you directly. When you are giving discounts again and again, you’re training your prospects to wait for your discounts. They’ll never buy when you sell full price. Since discounts are designed for customer acquisition or for clearing stocks, they are not good business strategies. A business that’s always selling 70% off is not going to stay in business a long time.
A discount should be an extraordinary event. This is something that should happen once a year or twice a year. It also must be justified, as a Christmas sale or an anniversary sale. It should give people who never bought from you before a chance to enter your ecosystem. It should not be a chance to train your existing buyers that they can get the same product if they wait for cheap as opposed to paying now. Use discounts as a strategic tool that the more you use, the less effective it is.
But if you don’t discount your prices in order to boost conversion, then what can you do? You offer bonuses. You keep the same price but you increased the perceived value. If you are selling a pizza for $10, instead of discounting it to $7, keep it at $10 and give a bottle of Cola. From a practical perspective, you lower your profit margin but you are not lowering the perceived value of your brand. He feels that your pizza is worth $10 but also gets a nice gift.
Are you interested in discovering how I can help your business or how we can apply these concepts to your own venture? Then let’s have a talk. For a limited time, I’m giving away complementary 30 minute calls. In these sessions, we’ll discuss ways in which we can maximize your customer value, boost your conversion, achieve more sales and increase any other relevant metrics in your business.
How are you? Are you kicking ass? Are you having great day? Mine surely is great. I’ve just finished my morning routine, during which I’ve got some great ideas (including a grid based goal setting approach) and some general life improvement ideas from Brian Tracy.
Today’s post is about copywriting but before this, let me cover something. All my life I had a very heated love / hate relationship with to-do lists. I always thought that a new piece of software can help me become more productive. I’ve tried GTD, I’ve tried Stephen Covey, I’ve spent hundreds of dollars in planners and software and more.
Eventually I’ve understood that the system that works is the one that follows basic simple principles. So I’ve downloaded Todoist (this is very recent). I like this piece of software because I’ve been using it before, as a premium member and then forgot about it.
Initially I’ve just made a list of tasks and went through them. But as I was reading “Eat That Frog” by Brian Tracy, I’ve got the idea to prioritize. So I’ve took the most important three tasks and I’ve prioritized them as very important. Then I’ve took the next three and I’ve prioritized them as important. I’ve done this for three sets of tasks – nine in total. And it makes perfect sense. Now I am focusing on the nine most important tasks.
However … here comes the kicker.
When I’ve done this the first time, I’ve just prioritized the old. It was good but it wasn’t great. In other words, I was doing more of the same. Then I’ve deleted everything and started thinking about what I can do to achieve my goal. This lead me to a dozen new tasks that quickly become top priorities, overcoming the importance of all the others.
So it isn’t just about prioritizing, it’s also about brainstorming what to prioritize.
I hope this little tip will help you in kicking it and winning your day too!
But as I’ve said … today we’re not talking about productivity. Instead, I’d like to talk with you about pricing – how to price your products or services, why people buy value and not pricing, how pricing is a heuristic for value in general and how you’re most likely way underpricing yourself.
Now, Adam Smith once said in the Wealth of Nations that in a capitalistic system, the more you charge, the less demand you’ll have. This is how the free market should work (btw, I’ve never read Wealth of Nations so I may just be wrong with the quote but it is also a basic principle of economics).
Offer and demand is directly influenced by the price. If you have 1000 people who want to buy your product but you have only 100 products available, then you should raise the price until the point of equilibrium, that is – 100 people in demand. It makes no sense to have a marketplace that you can’t satisfy in terms of supply and to leave money on the table.
Air-lines do this very well. The seats are sold dynamically based on supply and demand. If there are many seats available, the price is lowered to increase demand and this generally works. If there are many people who need a seat and these seats sell out fast, then the price increases. This is why it is far more expensive to stay in a hotel or book a ticket during holiday season than it is during the middle of April.
There are only a few industries that actually use dynamic pricing based on demand and supply because most industries are regulated and can’t pull a stunt like that. You won’t go tomorrow to buy a can of Coca Cola and see that the price doubled just because there is demand. The prices are fixed.
In any case, this is the old way of thinking – that the cheaper it is, the more people buy. This is true until it isn’t because price is also a heuristic.
What is a heuristic? It is a mental shortcut designed to take decisions. For example, a cheap product may automatically be considered poor quality while an expensive one may be considered premium and durable. An Apple MacBook Air is considered far better than your average ASUS laptop because it is twice the price even if objectively, it is not twice the quality (I had a few, I know).
Was this meal delicious because of the ingredients or because it costs more than what would you pay an entire week for food from a supermarket? It was good, but price made it feel special.
Heuristics are the tools our brain uses to not think too much. If we had to think about everything, we would be paralyzed. The world is just too complex. So we form shortcuts to reach decisions. If we see someone in a dark alley that looks like a thug, we automatically consider him a thug. He may be a philosophy professor but your mind doesn’t take into consideration alternative explanations but rather, the most convenient one.
If we see a piece of jewerely that is $10.000, we consider it automatically more valuable than the one that is just $1000, even if it may not be just like the food in a $500/dish restaurant is certainly not ten times better than the food in a $50 restaurant.
We have an internal mechanism in our subconscious mind that makes comparisons between what we know to be the average and any particular value and generally, in 99% of the cases, our brain always considers expensive to be good and cheap to be bad.
Heuristics control our life. Be it price or the halo effect (handsome / beautiful people are considered smarter, like there would be a correlation between physical beauty and intelligence), these automatic rules defy rational thinking but are as natural of you and I as it is our tendency to breathe or to close our eyes when we sneeze.
In practice, there are formulas to determine the value of any given item. These take into account the quantitative aspect (how much you get vs how much you pay), the quality, the reliability and a lot more. Needless to say, nobody uses them in day to day life.
So what does this have to do with you?
Well, let’s say you’re selling a service like web design. Everyone is asking $500 for a simple website. You’re asking only $250 because you have excess capacity. This means you have space to take more clients or you can make the website faster, creating two websites in the time it takes others to make one. In any case, you do your math and if you had a limitless supply of customers, selling it at $250 makes a lot more sense than at $500.
The problem is that when someone will hear that it is just $250, they won’t understand that you are talented and that you can earn more by having more customers than less. They’ll just think that it is of poor quality because you’re asking just $250. You’re doing him a favor, you’re doing yourself a favor and yet, it will actually work against you.
However, this could be turned around by rationally explaining why you’re charging just $250. You see, the “cheap is bad” heuristic is generally just an objection. Objections can be solved. If you explain why he’ll get the same quality as with $500 and explain in terms he can understand the entire thought process, the objection will be eliminated.
The problem is that it is just easier to charge $500 or $1000 and be done with it as there are very few cases in which it is worth justifying a low price, selling it as a viable option as opposed to simply increasing the price and letting heuristics work for you.
Let me give you an example from my life.
Some time ago, I’ve met this girl. She was beautiful and smart. Yet, I had no time for a relationship and I was in a stage of my life where work came first. I said no again and again. The more I said no, the more she wanted this. Eventually, we make out. Then the magic wears off. The fact that I positioned myself exclusively by not wanting her made her want me more. Rationally, I would need to play easy to get so we can enjoy beautiful moments together as soon as possible. But I’m not rational neither are you. What makes sense on paper rarely makes sense in human behavior.
So personally, I know that it is easier to get a customer at $1000 than at $250, for the same service. At $250 you are a beginner or an amateur. At $1000 you are someone who delivers something good. The strangest part? There are no objective standards. Clients don’t know what to expect at $250 vs $1000. If they knew what you’re doing, they’d not hire you but rather, just do it themselves or manage the project with low cost labor.
If someone comes and asks me how much is a sales copy, maybe he catches me in a special moment of my life. This means I’m either too sad or excited, I like this person and want to work with him or her no matter what, I like the project, I would have done it for free, etc. There are 1000 things that can go in my mind and that can make it a non price transaction.
But if I say $100, he’ll look at me and wonders why he wasted his time. I think it is worse to say $100 than $0. At least when it is free, he thinks that I have nothing better to do with my time. At $100, I just suck at my job. If I say $3000, he may afford it, he may not but he’ll surely treat my offer with respect. At $3000 I’m something he appreciates, at $100, I’m just a waste of time, even if the service is exactly the same.
So when I see someone charging $1 per 500 words, I form an image in my mind. I’m thinking of a person that barely speaks English, somewhere in a third world country, who is going to share everything I say with friends, who is never going to deliver on time and which work I can’t even use. Maybe he is the next Hemingway and he charges a symbolic price without even needing the money because he’s a trust fund kid and loves to write … but in my mind, I’ve drawn the conclusion. He must suck. The price is too low.
I know that this is unfair but the marketplace works just like dating. Price yourself too low and people will draw false conclusions about you. It’s not your fault or their fault, it’s just that we’ve evolved to use heuristics.
So what’s my advice to you?
The more you charge, the more valuable you’ll seem. Of course, you must also deliver but if you can deliver at $500, then you can also deliver at $1000. The truth is that when it comes to copy, I give it my best no matter if it is $500 or $4000. If anything, the difference is only in the prospect’s mind. He decides first how good the copy is based on the price he paid and then he reads it. Of course, copywriting is about results but I’ve seen an interesting trend – when the copy is cheap, the traffic is amazing and that’s why there are many sales. When the copy is expensive, the copy itself makes the sale.
I could go on with this but you do get the point. Price yourself above to what you’re pricing now. I’m not saying to increase it by ten times (you could though, depending on your market). I’m saying that a 50% – 100% shift is more about how you think about yourself and your skills and less about how good you actually are.
Does this mean that I overcharge my clients? No. But there is no set price for services. There isn’t a book that determines how much something should cost. When I was in London, I was paying about $15 for a Big Mac plus fries. If you go in some parts of the world, the price is $3.
When I was in Romania, I used to pay about $0.25 per kilometer for a taxi. In London I don’t remember exactly how much it was but I know that it was at least ten times more than that. If people buy, it is the right price. If nobody wants to buy and the objection you always get is the price, then yes, you’re probably out pricing yourself but for all intents and purposes, most people underprice and overdeliver than overprice and underdeliver.
There is one thing you can do right now which will boost your conversion rate. It is almost guaranteed. It taps into the basic human nature and I’ve used it successfully both for myself and for others.
It is simple – add bonuses to your offer.
When it comes to sales, bonuses alone won’t sell your product. However, bonuses are directly correlated with your closing rate, in other words, decisions to buy. The more you add of them, the more valuable they are to your market, the easier you are going to close the sale.
This is because we, as people, love getting free stuff. We like to pay for something and get something extra. This is present everywhere – be it that we get a Cola with our burger, headsets with our new iPhone or a free dinner at a fancy restaurant when you participate to a workshop.
I’m writing this post for self-improvement authors, trainers and coaches that have been in this field for a while already but are disappointed with their results. If you are just starting out, this may help you but my primary focus is on those that already put a minimum of one year in this field.
This world taught me something not very empowering. This is that you’re supposed to accept who you are, what you can achieve and be happy in your small box. It taught me that “you must” accept faith and that if things have always been in a certain way, things always must be in that way. I’ve learned that consistency for many is a virtue, even when consistency is actually the biggest obstacle that keeps you back.
I’ve learned that most people expect you to be the same, year after year, to tell the same story, to have the same level of success and achievement and generally, to not progress. This is especially true in the solopreneur / coaching industry when it comes to price. If you start at $50/hour, then in the view of most people, this is the rate at which you must stay for the rest of your life. After all, you’re supposed to be consistent.
This belief is what keeps most entrepreneurs down. The truth is that you’re not supposed to be consistent. If you’ve been charging $100 per seat at your seminar and tomorrow you want to start charging $20.000, that’s perfectly okay. What you need to understand is that your value as a coach / speaker is not determined by how much you are charging now but by the value you produce and most people I’ve met over deliver value and undercharge. In other words, they are masters in their fields and yet they charge just as much as complete beginners.
If today your average sale is $100, tomorrow you can change the price to $500 or $1000. Yes, you can do that. There need not be any relationship between your old prices and new prices. There is no one that regulates how much you should charge apart from the market. If the market pays, perfect. If the market doesn’t pay, then you’re offering too little and you’re charging too much.
I know a copywriter who five years ago was charging $1000 per letter. Do you know how much he charges now? A 10% improvement? A 20% improvement? A 100% improvement? He consistently charges and gets between $20.000 and $40.000 for a single sales letter. He knows that what he’s offering is very valuable for the right people so he charges 40 times more now than five years ago.
You need to stop thinking of prices as constant. Your prices increase as you increase your value. If you go to a workshop, read a book, achieved good results for your customers, your value increased and you can charge more. You can give yourself a raise every single time you feel like you want one. Yes, some customers are not going to be satisfied but it is fair to you to charge the same now as you did two years ago? Well, many people do that and worse.
You have the right and the obligation to price yourself based on the value you deliver to the marketplace. The relationship between value and price must always be a constant. You don’t want to be the “best deal” because you’re not WallMart. You’re a professional that is helping change lives and if today you are worth ten times more than one year ago, then charge ten times more. Don’t be afraid of the criticism that this will bring – because there are customers for every price level.
How would it be if Brian Tracy charged as little as he did when he started his career? I don’t know how much he actually charged but I can bet it is not $50.000 per presentation as I’ve heard he’s charging now. How stupid would it be if a Fortune 500 consultant charges as little after ten years of experience as he did after finishing school? It’s not logical and yet, people do it all the time. I see trainers who became amazingly better and haven’t increased their fees. I see writers who improved tenfold and yet, serve their customers at the same rates as when they’ve started.
This is scarcity based thinking! It is saying that you’re afraid that your customers are going to leave you and nobody else will come to your business when you refuse to charge what you’re actually worth. Yes, again, some people are going to be mad and upset about this but the vast majority will be simply be replaced by customers at a new price level and some of the old ones will make the jump too. You need to be brave and say “this is what I’m worth now, this is what I’m charging” and not ask the money of last year with the value of today.
Air carriers use dynamic based pricing. This means that the price constantly changes based on internal and external conditions. They aim to maximize their profits by constantly increasing and decreasing the price. ROI is their goal. I’m not saying to be as dynamic as an air carrier as there are few industries in which that model works well but you can update your fees every six months, three months and maybe even monthly! The only thing that is holding you back is just your fear of being judged for constantly increasing your prices but then you need to ask yourself – if you deliver better services, isn’t it only fair to be better compensated? After all, you are paying the price to improve yourself. Isn’t it only fair your customers pay the price too?
I can’t stress as how important this is because at least half of all life coaches, trainers and speakers I know charge fees as old as one year and in some cases, three to five years. Leaving aside inflation and that $1000 five years ago was a lot more valuable than $1000 is now, they have invested hundreds, thousands of hours in improving their craft and they’re asking for fees for someone that is far inferior them.
I know that you want to serve your customer but there must be a balance. There’s no incentive to get better if you are actually punished for becoming better. It is like a writer working on a hourly fee. If ten years ago, it took me five hours to do something and now it takes me only one, does it make sense to charge for one hour because I’ve improved five times my skills? No. It doesn’t. It’s actually punishing performance. Any improvement in productivity means a lower fee for the customer which may work great when there physical products but it is the worst thing you can do for yourself when you’re trading your time.
Performance should be rewarded, not punished, but you’re the only one that’s in a position to do this. Your customers will pay you what you ask. If you ask $10/hour for your time, there are people who will pay you that. If you ask $1000 per hour, there are people who will pay that too. Your only job is to deliver that value. If you feel like what you’re creating for your customers is worth $5000/hour, then charge $5000/hour. There are psycho-therapists in places like Beverly Hills that charge ten times and even fifty times more than someone in a place like Southern Italy. Your skills, your ability to create value determines what you get paid, not your market. If you feel like you’re worth more, then charge more and go to the people who are going to pay more. It is as simple as that.
That being said, my advice to you is to double your rates, whatever they may be. If you’re charging $25 per hour, double it to $50. If you’re charging $500 per speech, double it to $1.000. You’ll see that you’ll get paid the new fee just as easily as the old one and they’ll be just as satisfied with your services now as they were in the past.
I’m here to help you. As a marketing and copywriting expert, I’m in the position to help you with persuasive materials designed to sell your products and services. Let’s have a 30 minutes complimentary talk over Skype to see where are your bottlenecks and how my expertise of direct response copywriting and marketing strategy can eliminate them.
