How to Tell if Your Pricing is Right

Right price to chargePricing has always been one of the greatest games in business. In lean times, this is more true than ever. The price you offer has to reflect value, convey trust and cover costs of sales, delivery, and unfortunately, collections. And you have to be able to get your price.

How do you know when a price is right? Let’s say that you meet a prospect for lunch in an attempt to close a deal. When you finally come to the point of stating your price, one of three things happens:

  • Your prospect immediately says no, stands, and walks away.
  • Your prospect immediately says yes, shakes your hand, and treats you, the waiter, and everyone at the surrounding tables to champagne.
  • Your prospect contemplates the offer. The long silence feels like an ocean in your head until you hear that magical word: Yes!

In two of the three situations you closed the deal, but only in the third have you done it right.

If the prospect rejects the offer out of hand, he believes the price is too high, which means that you have failed to sell the benefits of what your company provides.

If the prospect takes the offer immediately, you have given away too much value for too low a price; your prospect feels like he’s discovered a Van Gogh original at a garage sale!

You know you’ve got it right when your prospect accepts your offer only after some deliberation. In this case, he knows the value he is losing if he says no.

Ultimately, your price is your demonstration of value. If you are getting your price in difficult times, congratulations, for you are truly valued for the value you bring.

11 Comments ▼

Andy Birol


Andy Birol Andy Birol is the author of "The Five Catalysts of Seven Figure Growth." He is also a noted small business coach, consultant and speaker who has been interviewed on CNN, Wall Street Journal, The New York Times, Entrepreneur, and Fortune Small Business. His blog is Profitable Growth.

11 Reactions

  1. Behavioral economics and neuroscience have significantly altered our understanding of how buyers make decisions under conditions of stress. (A Nobel prize was recently awarded for studies in this area.) Buyers have three options: buy from you, buy from a competitor or (and this one is becoming increasingly popular, especially in retail) not buy at all. The exact same price can result in one of these three options based on the context in which it is presented. Pricing has to have an overall strategy (examples: average sale at anchor point, average sale at 2% above or below major competitor, etc.) and then within that strategy display and presentation tactics (examples: fixed or variable pricing, discounting, etc). The selection of strategies and tactics have a lasting impact not just on the individual customer in front of you but also on the reputation and profitability of the business over the long term. Very few businesses make the effort to develop and then stick to a coherent pricing strategy. This is a big mistake. See Chapter Six “Pricing Strategies for Products and Services” in my new book “Creating Wealth With a Small Business.”

  2. While I appreciate the idea of considering pricing and value, this is a such a radical over simplification of the demand curve that it is meaningless. There’s simply no way these generalizations can be meaningfully applied with an enormous number of important variables ignored.

  3. Pricing is becoming a bigger challenge than ever. Now many buyers have started to use auctions as a way to force prices down and its very effective. The process: the buyer sends the vendors he is interested in a password for his website along with the date and time his auction will be held and details on the product or service he wants quoted. All the vendors come on line on the appointed date and time. THe buyer then states the price and terms he wants. Those vendors who are willing to provide that price so indicate. Usually, there won’t be any quotes on the first price suggested so the buyer offers another price and he keeps on going until someone finally agrees. Once someone agrees, anyone else can also agree or offer a lower price until there is only only survivor. Its a very effective technique. In this situation, if you are not a low cost vendor, you need to sell your added values to the buyer well in advance of the auction and then hope that will somehow influence him during the auction. Most often that won’t help because to qualify as a bidder in the first place you have to have the right quality, service and value.

  4. If there is competition in the market then you should try to beat them on price.

    If you can demonstrate “add value” over and above the norm, then a premium to the market price can be add, but this subject is complex as it all depends on the market, value and customers think.

  5. One of the issues I see with pricing in virtually every industry is the commoditization of goods and services. We view our food as a commodity. Many are even starting to view services like SEO as commodity offerings. In a commodity market, price is often the weapon of choice for competitors.

    To avoid a price war you need to differentiate yourself. Then the buyer can no longer compare your price to a competitor’s price (as directly). They are thinking more about if your proposal accomplishes their goals and less about how to get a lower quote.

  6. Hi Andy, I subscribe to your closing thoughts that price is demonstration of value. I posted very similar thoughts in a recent post “Does price affect brand value?”. You might like to have a look at it at http://bit.ly/dlG74P.

  7. This generally common logic. Of course, few pricing decisions are this simple. For us, we have a service that is new to many of our clients. They do not know the true value of our service because they’ve never used something like it before. Of course, once we start doing work for them, they are chomping at the bit to get more. This is why we’ve structured our pricing and services cafeteria-style so we can show the real benefit of our service at a lower price point and allow for enhanced services in the future.

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