What’s in the Box?
Are you ever asked why does your product or service cost so much? Perhaps they ask, how much do you charge per hour? What such buyers are seeking are clues to your production costs, so they can then work out how to negotiate a lower price from you.
It is often hard to explain to people the difference between the incremental costs of production of the millionth widget from the production line, and the development costs to design and test the widget, the set-up costs for the production line, and the overheads necessary to keep the production line running. They just see a few cents worth of materials and the direct labour on the line.
Or they don’t understand the skill that you have developed over many years of experience so that you can very quickly diagnose a problem and present a solution. They just see the time you spend with them and any hourly fee greater than they receive is ‘totally unreasonable’.
However by putting everything in a box where it is not possible to easily determine the production costs, it is possible to increase your prices. That is, you combine your products with service, and combine your services with products, and where you are consulting, ensure that the hours are opaque. This has the additional advantage of making direct comparisons with your competitors far more difficult.
When the connection to production cost is broken, the buyer must focus on value as the only reference point for your pricing.
If the buyer still considers that the price is too high, offer to take something out of the box. This decreases the value of your package but maintains your margin. As likely as not, the buyer will recognise the value reduction and agree to your price.
And lastly, the more elegant the box, the higher the price you can charge.
All you need to do now is to Empower yourself and take action …
May Your Business Be – As You Plan It.
Dr Greg Chapman – The Profit Whisperer
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