The dumb pricing mistake people make (and how to fix it)

by Derek Halpern | Follow Him on Twitter Here

Dumb pricing mistake

There’s a dumb mistake entrepreneurs make when they price their products and services…

…and it leaves a TREMENDOUS amount of revenue on the table.

Are you making it?

And if you are, don’t worry. It’s EASY to fix once you know what it is.

Don’t take my word on that though…

Instead trust the hard data and the real-life case study I share in the premiere episode of Social Triggers TV.

Case Study: Is The “Trade-Off Effect” Killing Your Average Revenue Per Customer?


Let’s take this a bit further…

Every business has three types of customers: customers who want discounts, regular customers, and customers who want the red carpet treatment.

And while the advice I shared in the video above might seem like a “trick” to get your customers to spend more money, in reality, all you’re really doing is ensuring that your pricing caters to each customer segment.

But what I’d like to now elaborate on is this: When you add a red carpet option, you’ll find that most people will avoid it. You’ll also find that people will avoid your cheapest option, too.

Why?

When people buy products and services they avoid the extremes (the cheapest and most expensive) and settle for the middle ground.

(I’ve got interesting research and data on that too, but I’ll save that for another day. So make sure you hop on my free newsletter).

Now I want you to do two things:

1. Leave a comment below this video and tell me about how you came up with your prices. I’m curious because one of the MAIN questions people ask me is “How much should I charge for [insert anything]?” And I suspect your experience will be helpful to others needing some guidance.

2. Open up your favorite email program, and send an email to 2 friends that says “Just saw this video about pricing. I think it will help” and link to this article.

And on that note, I hope you enjoyed the premiere episode of Social Triggers TV.

I’ve got several more videos in the pipeline, and another day lined up for shooting later this month.

So make sure you’re on the email newsletter (and subscribe to my YouTube channel) to ensure you don’t miss out on any of videos.

If you enjoyed this article, get email updates (it's free).

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  1. The paper I referenced in the video is called "Tradeoff Contrast and Extremeness Aversion" by Itamar Simonson and Amos Tversky. It was published in the Journal of Marketing Research.
  2. I first stumbled on the study about the trade-off effect in the book Predictably Irrational by Dan Ariely. To learn about more research just like that, check out this Social Triggers Insider episode with Dan Ariely.

{ 264 comments… read them below or add one }

Henri

Bam indeed.

That breadmachine story is fascinating. I’ve heard it in a few places, and it continues to slap me in the face.

In a hypothetical scenario, íf I had a coaching program at $1,000 and a product at $500, the another product at $250, would it work, or does it have to be the same coaching program or product?

What’s your take, sir?

P.S. My prices were pulled out of thin air ;)

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Susie

I say do it….sounds like your taking his advice exactly!

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Derek Halpern

I first read about it in Dan Ariely’s book Predictably Irrational, but I thought I’d share it again simply because it’s something people need to know about.

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Susie

Derek you are a total rock star! Love this video, even though your yelling at us, I’m so engaged! Keep it up :)

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Derek Halpern

Ha ha Susie.

I’m not yelling… I’m just loud

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Sabrina at MyMiBoSo

Woot woot! Huge congrats on the launch of Social Triggers TV Derek! I love your loud-talking self…and the message is pretty sweet too :).

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Janneka

Thank you for this presentation!!

It was great to see the zeal and passion you exhibited in your video – we need more people showing that level of passion because it is totally engaging and endearing and most important, it will have me coming back for more!!

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Jacob

Dude, you straight killed it with this. Production quality is off the hook. Your logo intro animation is ballin’. And not to be a total ass kisser, but you look like you’re getting in shape too (I’m not hitting on you).

Way to make me feel like an underachiever!

Aside from being wowed by the production, the info is invaluable. You’re so right, most beginner entrepreneurs might as well pull numbers out of a hat. If they are basing pricing on something, all too frequently it’s based on competitors’ pricing, not on consumer psychology.

Someone who does a great job with pricing tiers is Chris Guillebea with online products.

Anyway, great job man. I’m obviously going to subscribe to Social Triggers TV.

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Derek Halpern

I’ve never seen so many compliments in one blog comment in my life. This is going on my wall. Thank you. :-D

Glad you liked the content too.

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Laura @MOMables @SuperGluemom

take it like a man Derek! great production for sure. I’m subscribed. :)

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Jonathan Payne

Awesome stuff, Derek. It’s the little things like this that make all the difference between a successful and unsuccessful entrepreneur. As someone debating on how I should price my packages, this is a huge help.

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Derek Halpern

You’re welcome Jonathan. Do let me know what you end up coming up with.

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Dana Williams

Sheer genius! Now I just need to come up with a “whole shebang” package. I do have different levels to offer, but would like to sell more of the upper end. My pricing came primarily from determining estimated hours to execute each service plus my costs. Thanks, Derek! Once again, you rock!

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Dina Eisenberg

Good start Dana on the pricing. What’s missing from your calculations are what value your clients would assign to your services (it’s usually more than you would) and the profit (the reward for doing all this hard work).

Not to generalize, but most women calculate prices based on what they need like you did. You also want your prices to include funding for your growth like paying for a VA or doing your own video!

Derek, I already shared Social Triggers TV on both my fan pages, and will definitely be talking about price anchoring at my bootcamp in Oct. Wanna be guest faculty?

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Derek Halpern

That’s a start. There are other techniques to make the upper end more attractive than the lower end tiers. I’ll have to write more about that as another article or another video.

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Dana Williams

Thanks! I look forward to that. I’ve just gone in and revamped the entire thing-the Page was updated this week. Hope it’s easier to understand and more attractive.

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Ana

Derek, I hope you put up that article about making the upper end more attractive soon. My service business happens to be in a crowded field with a lot of competition where the skill is considered by many as a dime a dozen, so I had to be careful with my initial pricing. I’m going through changes now, so I need all the advice I can get. Thank you … so far! :-)

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Greg Hickman

Dude! Great video! Being a part of James Wedmore RMI program I can tell you worked with his script model. You killed it and great content of course. I’m totally going to try this.

Love the eyebrow part and the puppet master reference. Keep up the hustle’!

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Derek Halpern

If you look at his script model for videos, you’ll notice that that’s exactly how I write all of my blog posts and do my podcasts too :-).

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Jean Galea

This is great advice Derek, and I can see how it applies to WordPress plugins, for example. What’s your take on having a free version of your product, apart from the paid version? So many WordPress plugins have the free version and the pro version, do you think they are losing out by having a free version?

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Derek Halpern

Absolutely. I Do think having a free version can tank the sales of your paid version and I know a lot of people who have data to back that up.

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Mark Evans

Great stuff as usual Derek! I notice this pricing strategy a lot on web apps. Very common to have 3 pricing tiers. Hmm… it must work. Keep the good stuff coming!

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Derek Halpern

You’re welcome Mark. Glad you like it!

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Todd Herman

Great lesson today Halpern. I’ve probably had 30 pricing iterations in my time as a business owner. Each time I’ll kick myself for the time I wasted in not implementing sooner.

P.S. You’re crushing these videos. Keep it up.

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Derek Halpern

Dude, thanks. I’m happy to hear you like it. There’s a few things I’d like to improve on, but hey, that’s what iteration is all about.

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Nat

Yes yes yes!!!!!!!

Love your insight Derek and read all your emails.

You are absolutely right. Most will choose the middle package but you will have those that want the red carpet and will pay for it.

Thanks again for reminding me to change my two package approach to three.

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Derek Halpern

Glad you liked the video Nat, and when you do change it, I’d love to hear about your results.

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David Siteman Garland

Derek- Awesome job my man. GREAT to see you doubling down on video. I feel proud :)

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Derek Halpern

Yea dude. Video is the answer for us Lacoste wearing junkies.

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Omar Best

Hi Derek,

How much should I charge for a online membership program that teaches people the basics of stock market investing?

Thanks for your help.

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Derek Halpern

That’s not a question I can answer. There would need to be LOADS of other information available to make a decision on that.

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sean

Derek,

The tiered pricing or different levels is used heavily in sports marketing. In fact we call it walking them up the ladder, but more times than not most buyers would go the middle pricing route.

On a side note, the sound quality is much better on this vid. Helps hearinh impaired folks like myself.

Best

Sean

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Derek Halpern

Awesome. Also working on getting an interactive transcript live for these videos for sub titles too.

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Remco Boom

lol.. the transcript of this vid is hilarious!

Click the subtitle button under the YouTube video and select the (automatically generated) English transcript.

For example, the translation of bread machine (time/translation):
1.25 greg machine
1.27 thread machine
1.36 red machine
1.43/1.46/1.53 pregnancy

And my favorite, the translation of the 10k package
2:49 the tank package

:-D

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Loran Mutafov

Man, just a few weeks ago I had to give prices for web development.

I did the exact same thing. I gave a high price for a custom website, and when I saw that little cringe in the dude’s face, I told him about the cheaper alternative (with a ready-template).

He took the cheaper one, immediately. I wish you had made this video earlier. But anyway, I will soon have to follow-up with another client. Negotiations aren’t going my side there at the moment, but we’ll see how it turns out! :D

Thanks for the advice. It goes into use tomorrow!

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Dina Eisenberg

So, Loren, when you saw him cringe did you think to just ask him about his thoughts BEFORE discounting you? You assumed it was only the price that troubled him. You know the saying about that one.

If you’d asked, something like “I see you made a face…” he would’ve TOLD you directly. Once you knew his concerns you could’ve offered other things besides money to meet his needs.

Remember, in negotiations you both want the same thing: work well done at the right price. The fun part is finding the balance.

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Derek Halpern

Loran, if you use it, be sure to email me what happens. Would love to hear about your results.

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Dina Eisenberg |Speak Up Powerfully

I’d love to hear, too, Loren. Just remember to listen and clarify. And, if you say something wrong, just say so and go again. Do overs are allowed!

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Patti Perdue

I liked the content. I can use the informaiton. I will share it with our Technology group and others in our accounting and consulting firm. I will also share with clients.

As an industry, CPAs and lawyers struggle with pricing of professional services. The majority are stuck in the method of hours x rate per hr. (i.e., cost plus pricing) I am trying to move away from hourly rates and use value pricing. (See “Pricing on Purpose” by Ronald J Baker.) That method requires more knowledge and understanding of the client, what their needs are and matching the product/services to their needs.

I suggest you drop the cuss words (damn and hell). Not because I am a fuddy duddy – its because your position is well made without that type of emphasis. You seem to be too classy of a professional to need to use language that might offend even a small percentage of prospective clients. Including that in the video causes me to pause and consider what would others who I forward this to think of me. As CPAs and consultants, we are careful about our referrals because if I recommend you, your performance if poor reflects badly on me.

Keep up the good work.

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Carol

Patti, perhaps you aren’t Derek’s ideal customer… just saying. I struggled for a while about being something that I’m not, trying to please everyone by being professional and keeping my voice “corporate” but that’s not me.

Passionate people use words that help them to explain their passion. If someone is offended when I curse, I know that they will be offended when I tell them other things (like your website sucks). When I realized that my best customers understand my passion and accept my brutal honesty, my quirkiness and my way of communicating and that it was the worst customers that were offended by it, I felt liberated and I’ve never looked back.

So… if your customers are uptight and would get insulted by someone who swears, don’t refer them to those of us who do. It’s quite simple.

Cheers!

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Derek Halpern

I’m with you here. I didn’t actually script those words in my script. It was just what came out of my mouth during that moment of filming, heh.

But its something I should look into. I think these videos can appeal to a wide array of people, and I don’t really need to use the word Hell.

There’s loads of other four letter words that fit well there.

(kidding… Patti’s point was well taken).

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Rebecca Tracey

She called you “classy”!!

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Derek Halpern

Hi Patti,

Thank you for pointing that out.

But to be totally honest…

I didnt even realize damn and hell was a curse until you pointed it out.

Heh.

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Travis Van Slooten

Damn it Derek. What the hell are you doing? Just kidding. I’m loving the video and I like your passion too. Keep it up.

Travis Van Slooten

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John Corcoran

I think Patti brings up a good point here, Derek. On the one hand, I totally agree that you should be your authentic self. When you start to water down your personality and become someone you are not, you lose your spark, if just a little bit. On the other hand, making a few tweaks here and there (something I know you like doing) might further your reach and expand your audience, as Patti suggested, without making you feel like you are selling out.

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Margaret Welwood

I think Patti’s point is well taken. I appreciate clean, respectful language and will not refer someone who doesn’t use it. Carol has a good point too–we can simply not refer people who swear. But do you really want to eliminate prospective customers simply because they appreciate respectful language?

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Vicky

Hey Derek! Great Video! Your personality makes this topic a bit more approachable :) It’s much appreciated! I have been avoiding this topic.. My excuse for having 1 fixed monthly package is that I want to give 100% of my effort, – having packages seemed like I’ll be putting in less effort into the smaller packages which will not produce the results that I want for my clients. Hearing you say that you’re the guy who opts in for the expensive package, is like having a friend who only shops at Nordstroms, wich totally makes sense! Thanks so much for this high quality video. Looking forward to more :)

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Derek Halpern

Would you be surprised to hear that I basically only shop at Nordstroms, too? :-)

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Dewane Mutunga

Derek,

Really digging the video man, it’s a good look.

As for the subject matter, pricing is one of those this that a lot of people hit & miss on (myself included). Sometimes it’s not intentional, other times it’s because people don’t feel like they’re worthy of asking for such prices and end up lowballing themselves out of a ton of cash.

When I fall into this “trap”, I think about the Dunning-Kruger Effect. Most highly competent people don’t know just how competent they actually are.

Definitely some good (and timely) food for thought here.

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Derek Halpern

You actually have that in the reverse. Dunning-kruger is when people think they’re better than they are. Like all people thinking they’re above average drivers.

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Shinazy

Got it.

As soon as I finish this comment I’m going to change my pricing.

I only offer pricing per tutoring session, now I’m going to create packages of services.

Such a simple idea …. your friend, you readers and I Thank you.

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Derek Halpern

I’d love to hear how this turns out for you. Make sure you email me at news@socialtriggers

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Frances Palaschuk

Totally Fab! Loving this first episode of social triggers Derek. I am going to implement this pricing strategy on the landing page I am currently working on. Can’t wait for the next episode.

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Derek Halpern

Thank you Frances.

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Greg

Another dumb mistake when it comes to pricing is when people rely on a standard margin or markup on what it cost to make the product. This comes into play more on physical products rather than informational products, but you see it all the time. Price should be determined on value not on what it cost to make it.

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Derek Halpern

Yes, for sure. I notice a lot of Etsy store owners doing something like that. It’s bad practice.

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Star Khechara

I see this all the time too and scarily it’s still taught as the main model in small biz (I’ve attended several different business courses in the last few years).

Being such a maverick I’ve never followed that model. Luckily I’m such a massive geek too so I love to read all the science behind business and marketing and pricing. Tis fascinating stuff.

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Robin Hallett

Derek,

You are doing something great here – loving Derek TV (my name for it!). Your eyebrows are great :) don’t change a thing.

I am thinking about this topic in relation to my intuitive healing services and how to offer different packages. Problem is, I’m always worried my prices are too high already – and fear I am excluding people with too high pricing. Often I attract people who say, “I can’t afford it”.

You’re probably gonna tell me I am not charging enough!

Thanks for inspiring me, as always.

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Derek Halpern

There’s always a fine line when trying to figure out how much you should charge for whatever it is you’re selling.

But you have to just look at it like you have different customer segments. Right now it appears you’re not grabbing any of the lower end customers.

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Michelle Marcus

That just makes total sense!

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Will

Fantastic video, Derek!

Now a question: When you’re selling an hourly service vs. a product, can you still tier? You make a compelling case for me to develop a few standard product lines, but if I normally bill $100/hr for design, what tier options exist within that format? Wouldn’t seem ethical to charge clients different rates for the same service, plus, they talk to each other. Curious to hear your thoughts — thanks!

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Jacqueline

Hi Will,

Excuse me for jumping in. I think I can provide a good insight here. I’ve been charging as a freelance consultant for over 15 years. I was a management consultant to software companies and sold out to my partner when we were well into seven figures, to persue other interests. You Definately should always be quoting packages. Raise your hourly rate then offer a defined number of hours for a project at a lower rate. Have them pay it as a retainer up front to lock in the lower rate. Works wonders. Even better, go to larger clients and get a monthly retainer to have you available. If you go over the number of hours allotted then still give the a discount, just not as much. If you are under, then you don’t owe them a thing. I’ve done t for years. The higher quality clients that cause you less trouble will be fine with this. You’ll eventually lose the pain in the arse clients. Hope that helps, and best regards.

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Derek Halpern

You should avoid billing by the hour and instead bill by the project. That’s how all the top designers do it.

It’s called productizing your services.

Also, I’d love to see your portfolio sometime.

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Sandra Holze

Hi Derek,

I am a social media consultant. I am still figuring out how to best package my services. My question: would you put prices for services on the website? I can see the pros and cons of doing it. Would be great to hear your opinion on that.

Thanks,
Sandra

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Star Khechara

100% agree. It’s what I’ve been teaching my students for yonks (not that they always listen mind!). Derek you’re such a dude!

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Joe Hage

Great job, Derek.

I planned to have this run on my second display while I worked but you wouldn’t allow it. You DEMANDED my full attention.

Inspirational. I’d love to follow your video lead … I’m afraid I don’t have the bandwidth or production value team.

Joe

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Derek Halpern

I’m glad it worked. I’m excited to see the audience retention metrics tomorrow when they come out.

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Greg

I also forgot to include another interesting pricing example I’ve heard of. I forget the company that used it, but it was in regards to subscriptions of print and online. The pricing was:

Online only: $50
Print only: $75
Online + Print: $75

That third option is so magnetic because it gives the buyer such an easy comparison. Is the “print only” really worth $25 more than the “online only”? Perhaps… But is the “print + online” better than “print” at the same price? Absolutely. People get drawn in on easy comparisons.

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Jay Rosenberg

Greg, I believe that was The Economist magazine. That offer hit a home run for them. Readers thought it was a mistake – it was purely intentional — now The Economist includes the Online benefit in all their offers… and throws in a bright red Economist T-Shirt. [Best, though, is their student rate.]
Jay Rosenberg

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Derek Halpern

Dan Ariely talks about this study in Predictably Irrational as well. I believe it was the first chapter.

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Joseph Hughes

Peep outlines the Economist example and quite a few others on this blog post, which is a phenomenal read from a smart guy: http://conversionxl.com/pricing-experiments-you-might-not-know-but-can-learn-from/

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Margaret Welwood

Thank you very much for this valuable info.

Sean Davis

This is a good one.

I’m building a course right now and I used this exact pricing strategy.

I don’t think I gave enough credit to the top pricing causing people to choose the middle price, though. Instead, I was putting a lot of faith in the middle price pushing people to the lower price.

I think if I adjust the prices a little bit, it’ll help emphasize the middle price a little more.

Good stuff.

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Derek Halpern

Glad you liked it Sean and I’m pumped to hear about what happens when you change your pricing.

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Joshua

Awesome video Derek, and very timely as we’re about to release a new product next week that currently has two pricing tiers. Now you’ve got me thinking I should add a third…

I love the new show!

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Derek Halpern

I wouldn’t postpone anything that’s for sure. But it’s something to consider in iterative development.

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Nica Mandigma

Hi Derek, this is the first time I heard of this trade-off effect and it makes a lot of sense. I should be doing this in my VA practice.

That said, I came up with my rates by combining average salary for my job and adding to that the costs of doing my biz from my own home. I used this same formulation in coming up with a baseline rate for hiring a Filipino VA. I shared it here but I’m planning to update it this weekend.

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Kimberly Houston

Thanks Derek, this is excellent and timely info for me.

I spent the past weekend revamping my Services page after reading a few articles about pricing recently, and what you say in your video (naturally) confirms what I read. The idea of price anchoring especially resonates, because I notice how it works on me when I’m considering buying something for myself. Guess I’m an easy mark. ; )

I especially like the idea of having 3 tiers of pricing as you outline here, so that’s one change I made. I still have a bit of tweaking to do, and, of course, I’ll have to see if it ends up making any difference (here’s hoping), but at the very least I feel like things make way more sense now re my prices and services than they did before.

How I came up with my prices: when I was working in PR (10 years ago), my boss billed out my services at $125/hour. The freelancers I used when I was PR Director at that company were paid $50/hour. So I took the lower of those 2 figures and multiplied it by the amount of hours it would take me to perform all the actions in my service package — then reduced the amount to come up with what to charge. My logic was, if people balk at that price I could always say, “well, if you hired me from a PR agency to do this same work it would cost a minimum of $1250 but I charge less than half that.” Ok, I know that’s not scientific, and I don’t want a scenario where people think I charge too much — but at least it’s a step above pulling a random figure out of a hat. : ) And it’s just a starting point anyway — I’ll recalibrate as I get feedback.

Love the pink — or whatever color — shirt that is. I know that’s your thing, and I gotta say, you wear it well.

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Melanie Richards

That was hilarious! Love it! Seeing you is much more entertaining Derek!

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Jeff

had the same question that others are having. What’s the best way to price services in this way? Is it a package approach where you offer basic services at a low level, add on some more at the mid and then give them a premium package or even a monthly retainer kind of option? Just seems a little more complicated than the breadmaker example which was great info. Thanks, Derek. Oh, and if you could get a little more passionate it might show better on the video ;)…

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Melanie Richards

Derek, what are your thoughts on the opposite price structure: selling many products for a small fee, and then lumping them together for a special price (upselling essentially), which is cheaper then buying them individually. That’s pretty effective too!

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Chris Johnson

No regrets, we couldn’t have handled the volume of having sensible pricing.

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charles

Dude, you totally rock. I just love it. I am going to implement the strategy right away on my consulting business. Thanks a tonne for sharing. You were right. I just pulled some figures from my hat and priced my consulting services. Very bad of me.

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Darren Scott Monroe

Derek still on your list you are still crazy and still crack me up…..and of course your right LOL

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Cory Huff

I’ve heard that story and know this principle – it’s a great way to show prices.

Thanks for the reminder Derek. Great stuff.

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Rachel

I’ve found that the people who complain the most about pricing are not the clients I want. They nitpick me to the bone, and then don’t buy.

The ones who care less about pricing- either because they know they need the product the most, or have enough money to spend, are my best customers. Perhaps that’s because they knew that this was exactly what they needed? Or maybe it has more to do with their income bracket? I’m not sure.

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Guy

Hi Derek,

I’ve been following your blog for a while now, so thought I would say hi. Enjoyed this little video, you practice what you preach (Duh ;) and keep it entertaining.

I am struggling to decide what to charge people. In the process of setting up my own little SEO business and will focus on small businesses to begin with since I don’t have the capacity for taking on very large projects. Yet.

I still don’t know what to charge after watching your vid since every SEO project will obviously be dependent on its scope, and I can’t publish prices on my site (still under development), since the pricing is dependent on the scope of the project.

Do you have any advice on how to tackle this type of scenario. I have been thinking that when talking money I’ll offer the “bronze, silver & gold” type of packages.

Another thought, slightly unrelated to this post, is that your brand of psychology is very Americocentric (obviously), but have you considered the difference between you yanks and us pommies (or the slightly more cerebral continental types). Brits are less impulsive, less reptilian responsive, slightly more measured in their decision making, a tad more reserved, a bit less inclined to IN YOUR FACE CAMPERS! Just want to reassure everyone that this is in no way a criticism, but there is a very definite difference in the cultural psychology of different societies, which may potentially have a huge effect on the tactics used to achieve the same goals.

All this aside, thanks for the helpful advice, you are certainly on top of your game right now and I have learnt a thing or two from you so far for sure!

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Victoria

Hey Guy! Yes Derek’s style is very American. I personally love that but as a Brit I know that his strategies might not always work in other cultures. Brits are more reserved when it comes to the topic of money but that doesn’t mean you can’t apply Derek’s strategies and adapt them.

With regards to your SEO company; having three packages sounds like a good idea. Don’t under price yourself because you have to account for the time it takes to do SEO work for clients.

Just start with a price/package and adapt as you go along. Testing is key.

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Guy

Hey Victoria :)

Thanks for the input, I absolutely agree that many of Derek’s strategies can be adapted to our slightly more reserved culture :)

With regards to a pricing structure, do you have some experience in this area that you might like to share with us, from a Brit perspective? Any insights would be much appreciated :0

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Lise Halskov

Hi Guy and Victoria, interesting conversation – I hope you don’t mind me butting in! I do consulting (in Denmark) and has been wondering whether I should have pricing available on the site presented as different standard packages. My consulting is not standardised, but I have wondered whether I am loosing out on clients by not quoting any prices on my site. Even with standardised packages, there would still be the option for clients to have individual options within the packages. What’s your take on this?

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Victoria

Hi Lisa,
I definitely think you should put your prices up on your website because it instantly weeds out the good/great clients. I know with my tutoring business, I waisted time with clients who weren’t willing to pay because I wasn’t clear on my prices. Also I think you should offer different services in the form of packages. That would allow those on lower budgets to get a taste of what you do and you could then up sell to them later on. Also allows your high end clients to get premium/ VIP service.

@Guy, depending on the type of business you run, there are a few ways around it. My uncle says ‘British people are cheap’ lol. Yes, he’s American! But he sort of has a point. We tend to buy things based on reputation and perceived value. If you can communicate the value in what you’re offering, that automatically increases perception and justifies a higher price tag.

Would love to hear more suggestions from fellow Euro entrepreneurs :)

One thing I recommend is including bonuses/extras in your offers. It doesn’t have to be expensive, it just needs to seem valuable to your demographic.

Sandra Holze

Hi guys,

I am Sandra. I am German and do social media consulting. Firstly, I think the strategies Derek presents work in every culture. It is more a matter of communicating them in the right way. I think Germans are even more reserved than the Brits. I’ve lived there and to me it seemed very American :-)
I am struggling with my packages because they are almost always bespoke packages. But I do know that having them makes it a hell of a lot easier.
About prices on the website: I hear people who say don’t publish them because you want to pull clients in with the value you offer. You basically sell them on the offer before you mention prices.
On the other hand I see the advantage of having them openly because it would rid me of all the cheap clients who want my consulting time without paying for it….

any thoughts?

Sandra

Ross O'Lochlainn

Great stuffing.

As I’m typing this I thinking about how I’m going to add 3 pricing levels to my next proposal.

Any website developers/conversion folks have ideas for additional ‘add ons’ they include at higher price points?

How exactly do people scale their deliverables for different pricing points?

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Ross O'Lochlainn

P.S. Social triggers video is off da chain!

Loved the “pay attention” focuser

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Holly

I have a handmade item that I think is sellable but hardly sells at the price I need to ask for it, 95.00. The price seems high in my crafts booth. Well, clearly I just need to make a version that is say 150 to 175 and then the 95 dollar one looks like a good price and really a good solid choice. The 95.00 price then becomes very attractive instead of repellent like it is now. Thanks so much, I can use this concept starting immediately.

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Dina Eisenberg |Speak Up Powerfully

So, Holly, just thinking out loud. What if you also explained why the piece is that amount? Naked numbers are kinda ugly.

You need to clothe yours. You know, talk about it’s handmade, your training, the uniqueness of the materials and having a one of a kind design. All those things add weight and value to your work that collectors would appreciate.

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Rodger

Thanks for the video. This is an interesting pricing structure. My company does this for its marketing packages, but I never knew why until now. Maybe I’ll try it on my stuff.

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Jared Romey

Derek,

I’d heard this before but always forget about it when it comes to pricing. Thanks for the reminder. And your presentation was great, congrats on your foray into TV.

Jared

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Aimee's Simple Living for Busy People

Thank you, Derek, for affirming that I intuitively already knew about consumer behavior — the “trade off effect” is real. I can tell you that I personally fall for it all the time, and I know that my clients do, too.

I am in the service industry, and instead of offering one signature product, I offer four packages to my tribe with a variety of price points. This variety not only side steps the “Trade Off” effect, but it allows my clients to continue to re-book with me in the future, or to “upgrade” to a greater value package if they feel like they need more juice. They are:
1) Let’s Make A Plan! (The Simple Living Foundation Package) @$395
2) Let’s Get It Done! (The Simple Living Accountability Package) @ $595
3) Let’s Get Control! (In Home Custom Fix-It Package) @ $2895
4) The Ultimate House Makover (In Home Custom Consulting Program) starts @ $20K

When potential clients get to my Work with Me page, I know that I am planting this seed. When they see that one package “starts at 20K”, their unconscious mind “sees my value” . It was scary at first putting that in public on the internet, but now I am really psyched that I did. I am attracting the right tribe members. (Btw, very few do buy this upper tier package — which is intentional …and, coincidentally, I am closing a deal right today! Woo Hoo!)

Also, there *is* a method of how I decided to price my packages. It wasn’t out of thin air. For each of my packages, I calculated a “worst case scenario” for the maximum amount time I will spend (not trying to be Debbie Downer here, but I need to calculate for error, especially in a service based biz) as to how many hours of my time I’d need to ensure a happy customer as the end result. Then, I decided on a market value for my hourly rate.

Quick note: Because I do not offer any straight forward “60 minute consults” with clients, they have no way of figuring out how many hours I put into it, so they can’t figure out my “hourly rate”. I know that our egos are obsessed with “getting the best price” — I am not trying to be sneaky or anything, I just want to ensure that I am attracting the right clients, and that they are coming to me for the right reasons. Not just for the “good deal”. I want to be sure that my clients feel 100% confident that I am going to deliver. And I do!

Again, thanks so much for this juicy Social Triggers topic.

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Kasia

Aimee, I love your way of calculating on the basis of the worst case scenario to make a customer happy nevertheless, never thought of it, great. Thank you for sharing!

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Aimee's Simple Living for Busy People

I am glad it was helpful, Kasia! Working in Corporate America before venturing on my own taught me a thing or two with pricing :)

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Melanie

Love the new videos Derek. Your personality is great…even if the puppet master is controlling you! ;-)

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Amandah

Your videos are entertaining and educational at the same time! :)

I came up with my pricing similar to Kimberly’s pricing structure.

Freelance writers are in a unique position because they may offer different writing services ranging from blog copywriting to newsletter writing. But, you could offer a ‘package’ price for blog posts and or articles. I think most freelance writers figure out their hourly rate and then build a ‘project’ rate from that point.

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Maxi Tromer

Hi Derek!

Thanks for this EXCELENT Video/Post!

YOU ROCKS MEN!

But I have just ONE big questions for you here:

- What’s about the differences of amount between them?

Thanks in advance!

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Niight Wind

Wow! Love this, I struggle with pricing and this makes a lot of sense. Three is the magic number, I heard something similar on an Etsy video but the facts you gave make it seem so sensible. I will implement this on my new website launching at the end of the month.

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nancy fox

Great strategy – have used the 3 tier packages for quite some time. Many of my clients do choose the highest pricing so I agree it’s so important to give these 3 levels.
My clients sometimes enter at lower level and upgrade and upgrade. Win win all the way around.
I have to “raise my eyebrows” at the suggestion at 4 prices because people can get confused and buy nothing.
And love your use of “out-takes” in a biz video – Now that’s new!!

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Jim Bessey

Loved the video, Derek–

Short, sweet, and SOLID. Had fun, learned something really valuable, and ended up spending more time on your site (plus noting some things to follow-up on another time).

Am now re-thinking my entire number-out-of-a-hat pricing strategy for an upcoming launch.

Many thanks! And, oh yeah, Rock On Dude! :-)

~Jim

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Jamie Alexander

Definitely learned something very important, as I do every time I visit the site.

I now know how I’m going to tackle the pricing issue of my first product. It might be a few months until it’s ready, but I’m glad I know what to do.

Cheers

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ryan

Nice work Derek —

My girlfriends fitness website was one price. We often fluctuated the price for various reasons but we only had one price point. We re-did the site and have the pricing table graphic… made one membership price point ALOT higher than the other two…sure enough the first two new sign ups we got were for the highest price point. I can send you the site…not sure if it is appropriate to leave it on a thread.

We left lots of money on the table.

Ryan

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Steven Davis

Great video. Short, sweet, and right to the point!

… though, as Susie said, you probably don’t need to yell :)

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Sam

Great Video Derek..
breadmachine story is great, however i would not say its still relevant with current market situation,time was different then… !
Other story is inspiring… and one can really apply that…
How would you do similar pricing tricks when you are selling physical products like clothing, shoes.. or anything of that sort..?

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Andrew

I was watching the live blog on cnet.com about the Amazon Kindle launch/upgrade. Most people where excited because they thought Amazon would be announcing a lower priced Kindle HD (which they did with a Kindle at $199 and $299). But then they announced a $499 Kindle with a measly 250mb of data per month. I was listening to a video commentary about this and they were wondering why they would even do this since 250mb of data a month isn’t enough to download much media. It’s obvious that they did it to anchor people at the higher $499 price, but then they will ‘trade off’ and buy the $299 one, which is actually $100 higher than people were hoping it would be.

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jackie harris

Thanks for that – I’m flirting with a new venture idea and originally planned three levels. Then I changed my mind and thought for simplification I’d offer just one price point – take it or leave it. On reflection I think I need to go back to plan A and return to the three.
Thanks.
Jackie

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Melody | Deliberate Receiving

Hey Derrek,

This came at just the right time for me. I’m about to raise my prices and am offering 2 different programs (I’m actually eliminating some Pain in the A** programs altogether). Now, I’m seriously thinking about coming up with a third.

You asked how we choose our prices. Well, I’d love to say that I studied the market, but there are very few people who do exactly what I do and if I just look at coaching, the prices are all over the place. So, I go with the largest amount that I can believe that people will pay me. I find that at first, I’m a bit uncomfortable with the new price. Then, I get comfy. Then, it starts to seem a bit too low. When I find myself getting a bit worried that I might be charging too little, I look into raising my prices. That’s how I’ve done it so far, and there hasn’t been any backlash.

Thanks for providing such awesome information.

Hugs (I’m a hugger. Just go with it.)

Melody

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Teresa

Great Vid.
My website is in the works but, the 3 pricing options
is a fantastic idea.

You deliver, entertain, and engage like a PRO!

Best wishes with your TV show!

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Mariana

Really well-explained. It’s crazy how much psychology there is to pricing. I’ll definitely keep price anchoring in mind as I price my products. Loving SocialTriggersTV as well, you’re very entertaining! Will share with some of my friends for sure. Can’t wait for the next episode.

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Kasia

Hi Derek, and thank you for the info.
It reminded me of the importance of the 3rd price point at the exact point in time when I am about to set prices in my new business.
There is a great book on pricing by William Poundstone ‘Priceless: the Hidden Psychology of Value’ – a great and entertaining book incl all sorts of up to date research in behavioural psychology related to purchasing behaviour, but also work of Tversky and all. It has one chapter on luxury goods/brands and the way they are priced – ie 1-2 exorbitant products (that red carpet customers will buy anyway as they want the best/most expensive/unique) which make anything below look like a $1 bargain, even at several hundreds/thousands $’s.
My only dilemma at the moment is whether I should charge slightly less just because I am starting out, even though I have a niche product and there is nothing similar on the market as far as I’ve researched, and I have all the competences etc, or just go for it as if being a new business had no importance at all. Any comments of yours on this?
Thank you!
Kasia

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Dina Eisenberg |Speak Up Powerfully

Kasia, have you thought of re-framing your being new into something positive?

Years ago when I launched my first consulting firm teaching corporate executives emotional intelligence skills, I was well trained as an attorney and mediator, but a newbie to consulting and to the industry, banking. The concept of collaboration was also new to them ;)

Instead of apologizing for that, I made it my selling point! Because I wasn’t one of the ‘boys’ who’d been around forever, I had a fresh perspective and highly relevant, and cutting edge skills.

Because I wasn’t familiar with their industry, I could spot inbred problems and question the status quo to get better results. And, I charged more because of all that.

So, I say go ahead and charge more. You’re the new, next best thing!

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Kelly LaVine

Looks like I’ve got some work to do. Thanks for the valuable info, and congrats on your launch. :)

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Thomas @ Mobile App Tycoon

Awesome information Derek! Also, love the extra little snippets you’re adding in the middle of the video to keep people’s attention. I made this mistake when I had my BMR writing service – I probably could’ve increased my sales of my higher priced packages if I put a much larger “Pro Link Building” package. Definitely not going to make the same mistake for my future products :)

Thomas

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Jay Baer

Nice job on this D. Well played.

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George

This is a variation of Cialdini’s law of “Comparison and Contrast.” This particular study (the Sonoma one) was illustrated in his book “Yes!” Where they show about fifty different cases of how to leverage the six “laws” of influence Cialdini illustrated in his groundbreaking work. If you’re selling anything to anybody, then you NEED to own this book:

“Yes! 50 Scientifically Proven Ways To Be Persuasive”
Cialdini, et al

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Rosie Addison

Holy moly, this is the most helpful info I’ve heard in awhile! Thanks so much Derek, I’m gonna go and make me some money…

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David Hamilton | Everlution

I love this man! I just created three packages for my social anxiety program, and I hope it works like you said.

Dude – so amazingly informative as always…and you are cracking my up, because I can see you cracking up over something off camera it seems like. Reminds me of when people crack up on SnL.

STTV is looking great, keep it up!

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Jeremy Maher

Derek – great info about additional price points.

The subscribe box at the end is a great feature. Maybe a “how to” on creating one of those could be in a future video class? :-) (not that “googling” it is not a solution)

I did feel like you were yelling at us, even though you were just excited. :-)
My product comes in three payment/package options to help suit my clients needs. Never thought doing it had other benefits. Thanks Derek.

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Greg Thompson

I like videos because they allow me to skip to the part to where you actually start delivering the answer. In this case I found it at 1:16 when you finally said “I’ll explain” :)

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Simon

Thanks Derek – a really interesting insight and video to boot.

This type of pricing approach falls in line with a few points covered in Todd Sattersten’s Ebook ‘Fixed to Flexible’ which broadly discusses the way in which consumers perceive value.

http://www.scribd.com/doc/26237737/Fixed-to-Flexible-The-Ebook

Just putting it out there for those who are looking for further reading on the subject :-)

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Mynda

Interesting. My Excel Dashboard course just closed and the most expensive package was the most popular out of 4.

Does this mean my prices are too low?

BTW, loved the out-take in the video.

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Taleen

I love this video!!

Just recently launched my own Event Management company and I was stuck on this for weeks!! I researched as much as possible, but rarely ANY competitors had pricing on their website.

I decided to offer flat rate package prices (particularly for Weddings) that accommodated the 3 levels that you mentioned! The bargain clients, the middle ones and the top of the line ones who want special treatment.

I’m really glad I did, this video really gives me a confidence boost that I did the right thing.
THANKS!!!!!

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Keller Coleman

You make the most energetic and informative videos. I can take some of the tools you shared and implement them in business. I had heard about the three teir levels. I sure will implement it now.

Again, thanks for sharing. YOU ROCK!

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Chihuahua Zero

Funny enough, I know one writer who is offering three packages on his e-book. Guess which one appeals to me the most. (Although I received a review copy.)

However, how can this model be applied to fiction?

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Stefano

Fascinating, although I use a different strategy: I sell audio files for 1-3$ each, and then the complete package with all the tracks for 9$ instead of the 17$ it’d cost if purchased separately. I never tried experimenting, but seeing the numbers I can tell that a lot of people are purchasing the 9$ package even if they usually need two or three tracks, because it’s seen as a deal. This increases my average sale quite a bit.

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Andrew

I’ve used this in the past with shipping to increase conversions. We ship bulky items where the shipping cost as a percentage of the order total can be upwards of 20-30%.

Offer Fedex 2day and suddenly the non-discounted Fedex Ground looks like a steal. Don’t offer Fedex 2day and the Fedex Ground makes people second guess.

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Eugenio

Hi Derek,

Great advice. I have a single invention that I am selling online. I packaged it in an 8 pack to retail it for $19.95. I made another package that included 30 of these with addition screws, etc to build a kit for $89.95. I offer free shipping if you order 3 or more packages. I am wondering if I am pricing things right?? I guess the $19.95 w/ $6.99 shipping is the less expensive, 3pack with free shipping is medium pricing, and ?????? Hmmm, maybe I should offer $3.99 shipping for 3 pack and free shipping for 6 packages!!! Wow! Never looked at this option! THANKS! Eugenio

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Guy Ferdman

Great video Derek! Keep ‘em coming.

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April Greer

Derek,

Can I just say you’re a genius? Really, I think I offer some brilliant advice on my blog, but yours is just phenomenal. (And I feel the same way you do – “people don’t already know this????”)

I’m implementing this pricing structure RIGHT NOW. You’re so right – no one wants to feel “cheap,” so most don’t pick the least expensive. And most also think, “wow, what a great deal I’m getting…this one’s much cheaper and I’m not sacrificing that much.” But in the end, I’m getting the price I’ve been haggling with clients over already for little to no hassle!

Thanks a billion!

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Andreea

Great video, Derek! And that’s an interesting study you shared. I am actually about to launch a new program and couldn’t decide between offering 2 pricing or 3 pricing option, so I’m definitely going to go for the 3 price option! Thanks again. Great video.

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Atoya Sexauer

love it!

I am a local business so I based my pricing on being competitive in my area. I researched all the hairdressers/makeup artist in my city and tried to keep the same rate.

I’m always trying to figure out how to apply your principles to a local biz.
No one else in my industry seems to be doing this?

Keep kickin’ Ass.

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Barbara

Atoya — Why match local rates? Couldn’t you offer standard and premium pricing? Maybe premium includes a pedi or a 10-minute trim between scheduled services or something. There are loads of people who WANT to party a higher price because they think it means they are getting a higher quality product.

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Jenny Foss

What was the major retailer that used to do the “Good” “Better” “Best” pricing? Sears? Totally love the simplicity of the tiers here — and well done on the video debut! (I am FOREVER talking like a puppet master is controlling my eyebrows, so I found it rather endearing, btw.)

Cheers, and congrats on the new platform here.

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Jean-Luc

Congratulations Derek for this 1st episode awesome
Well I have only one price… Shame on me, gonna fix this

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Lauren Fritsch

I freaking love you Derek! keep being loud. i like 3 options to direct them to the middle one. i’m going to create 3 packages for my next launch 395, 495, and 795 per month. do you think those first two are too close in $?

When are we hanging out in NYC??????

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Laurie A. Wheeler

The three price points are hugely important. But, interestingly in my market (which I’m um…kind of creating because I’m doing something that’s never and I’m totally serious about that… never ever been done before in the consumer hobby craft industry) having the three was how I divided my customer base to select the members that were most ready for the “good stuff” and they are literally buying into the option to buy into more.

The middle range isn’t getting picked up a whole lot, and the bottom end is happening. Basically I’m teaching business and professional skills to mommy bloggers and makers who sell their work or want to monetize. Since they don’t see what they do as a business I have to educate them :D However, rebranding helped. Messaging helped and next I’m going to offer a more expensive option of monthly fees so you can spend a lump for a member level at a more affordable rate or you can do a monthly fee for what seems less.

I think that will actually turn around more, because these people have different spending habits.

In my other business I’m still developing product but I’m going to go the other route and offer much higher dollar (basically the crochet biz was me testing some economic theories) amounts to professionals and entrepreneurs who have a totally different economic psychology.

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Suhaili

Hi Derek,

This is a great video since I don’t really know much about pricing other than to be sure that the pricing covers the cost and how much I make profit per item sale. This may seems ideal for those who are selling digital products and services but I was wondering how to implement this kind of pricing if you’re selling physical products.

In the case of physical products, does this mean that I have to sell three similar items but different in terms of quality so then the customers can compare the price and decide which they want to buy?

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Katie Davis

Derek, this video is excellent and I’ll definitely use the info! Thank you. I’ve already forwarded it to a bunch of friends. BTW – loved the content but also loved the eyebrow thing (I do that too in my videos and thought of it as I watched you and then you actually said something! Plus, it was a nice touch at the end!)

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Monica Lee

Wow! Lots of chatter over here, Derek! This email (I subscribe) came at THE perfect moment when I needed a light bulb moment and I got one with this message-really! Thank you and I found you through David Garland so yes, I am on board with video :) everyone learns differently. Thank you for the light bulb click in my head and I think your muppet eyebrow moment was funny!

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Lynn

Great point! I heard a story once about a store (not sure which one) that had a food counter. They sold milkshakes that cost more if you added an egg. No one was buying the added egg until waitresses started asking, “One egg or two?” There definitely is psychology involved in pricing!

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Adam Miller

You got me on the, “hey, pay attention” cut. It worked. Great stuff Derek.

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Natasha Burger

I guess this is what they meant when they said to have several price points in your shop – I get it now!
I price by “cost of supplies x2 + time (at $20/hr)”. It is low by any pricing formula I have seen, but I am selling costume jewelery – online it is a fairly saturated market and in person I live in a lower income area and don’t want to price myself out of the local market.

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Ian Belanger

Hey Derek,

Awesome video and post! This is the first I have heard this information and I have to say, it makes complete sense. I know that I have done this same thing when buying something. I completely rationalized buying the “cheaper” version of a product, just because there was a more expensive option.

You hit the nail on the head with this one.

Thanks for sharing Derek and have a good one!

Ian from IM Graphic Designs

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Robert Miller

Dear Derek:

From an accounting point of view I used the following formula for pricing.
SP = C + M which is selling price = cost + markup. However I do not do things just on accounting. The real formula is SP = C + M + W which is selling price = cost + markup + what it’s worth to the customer. The worth to the customer is a loaded statement. It involves consumer behavior, also if applicable what a customer would make using your product. I have a product that has three levels for the reasons you mentioned. You can start out with the lower cost product but move up the the more expensive one. Each level will satisfy your needs but the more expensive one will give you the best experience.
What you mentioned is good stuff and people should focus on what it’s worth to the customer. You wouldn’t sell something for $1,000 that can make someone $100,000, regardless if it only cost you $5.00. Once again thanks for passing on the pricing strategy knowledge.

Regards

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Patrick Reilley

Derek have you had any experience with the Pay-What-You-Want model? I’ve done some preliminary research and saw that radiohead used it for the release of their newest album with mediocre results. http://www.cbsnews.com/8301-505125_162-28041214/first-results-of-radioheads-pay-what-you-want-experiment-are-in/

Panera bread tried it
http://www.npr.org/blogs/thesalt/2012/09/07/160685977/panera-sandwich-chain-explores-pay-what-you-want-concept

but the most comforting research came from this study at a theme park where customers were asked to buy photos after their ride and the experiments set up a few different payment methods. http://arstechnica.com/science/2010/07/pay-what-you-want-benefits-companies-consumers-charities/

the method that is most interesting to me is when customers were able to dictate their price AND they knew that HALF of their payment would go towards a charity. The individual was then less likely to buy, but more likely to spend quite a bit more then when they were ONLY asked to pay what they want without any of their money going to charity.

I plan on using this method–pay what you want + donate some of proceeds to charity–with a membership site i will have on my blog.

Since the blog will focus on personal development, do you think this is a viable experiment seeing as though i intend to attract a more conscious consumer?

Oh, and of course i am subscribed to this blog and your videos. LOVE IT! And i am truly grateful for ANY feedback you offer.

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Michael McCarty

That was STRANGE! As I was listening to your video I was completing the first time ever 3 tier pricing structure for my business. I think I was finishing as the video ended. I guess the Universe is talking to me today by you saying what I am doing is what I am supposed to be doing.

Thank you Universe and thank you Derek

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Rebecca

Brilliance Derek. Great work. I have a life coaching business with a great package for going from being stuck to unstoppable momentum but no differentiating levels – so about to change right now. So simple so easy I love your work.

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Gabe

Awesome video! I really enjoy consuming your content this way.

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Lori Stalter

Wow. Sometimes following a random tweet on twitter brings a jackpot. Great video! I’m sold and signing up for your newsletter.

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Salim BELHADDAD

Great tip. I learned it from Cialdini years ago. You can make it even more powerful with just a little customization.

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Jivan

THIS TIP WAS SO AWSOME DEREK!!! THANK YOU FOR SHARING.
I’M GONNA IMPLEMENT IT INTO MY JEWELRY BUSINESS AND SEE WHAT WOULD HAPPEN…
I KEEP YOU POSTED :)

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Lorraine Rorabaugh

Liked the video but how does it apply to product pricing?

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Tim Stein

Hey Derek

Love the new videos and the great info as usual. As a private piano teacher I have been struggling with a pricing structure for years. Your tiered system isn’t a new concept for me, but I am contemplating how best to incorporate it into my line of work, as a service professional (doesn’t that sound awful?). People seek me out because of me, and my fee reflects both my years of experience and my qualifications.

The majority of my clients sign up for a termly booking, for which I charge an hourly rate. And I apply the same rate to those who come for one-off sessions. It would be awkward to charge varying fees to clients who may come into contact with one another.

Advertising rates on websites would be a fascinating topic for discussion. I have never done so myself, as it seems like a very un-British thing to do (especially in my line of work), but why not be as transparent as possible. At least it gives people the option to make comparisons…and you don’t end up with hagglers and time wasters.

Would love anyone’s thoughts…

Keep up the great work

Tim

It is a very un-British thing to advertise my rates on

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Melissa

Hey Derek,

This was a topic I’d heard spoken about before (specifically for freelancers) but you did a great job of pulling out the essentials and boiling them down to a format everyone could understand.

To answer your question, my prices come from several things—first, what I need, minimum, to survive. Second, what my customers are willing to pay for my services (based both on the number of yes and no answers that I get to proposals and on the going rates in the industry). Finally, they’re based on the concept that everyone likes to know what they’re spending up front—so even though my rates are based on an hourly figure, I stick to a set rate once I’ve quoted for it.

That said, I’d be interested in learning how I could use the package idea more, as I do a lot of very varied types of projects (namely, copywriting) and my niche is more based on the type of client than the type of work. I’ve been struggling to decide how to “tier” that type of services . Thoughts?

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Tanya Malott

Derek,

I think what you are talking about is “the Wendy’s principle”….offer a small/med/large and you will be selling the medium. I have used this principle for the last 20 years, and I agree it works. To raise prices, I drop the lowest price and add a new one on top.

But I recently learned that Starbucks took it one further by offering a FOURTH price, the Treinta. Why? Because they wanted to split that middle. By offering TWO middle prices, they actually would make more money, just on the people who went Veinte instead of Grande. If I understand correctly, they weren’t making substantially more on the biggest cup, but they were making a lot more just by offering two middle sizes, and encouraging a lot of Grande buyers to go up a few cents.

My data may not be perfect, but I’m sure you can check it out…

:) Love your new TV channel!

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Tracy Matthews

Derek,

You are the best. I am so glad that you are doing video now! Thanks for this!

Tracy

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Pat Bloomfield

Great video Derek,

I’m working a strategy for photography that I think is in-line with this. The idea is the biggest wall portrait I sell is my “whopper” that’s so expensive no one will ever buy it. But after hearing that, smaller ones feel much more reasonable.

In practice though, it often doesn’t work because houses in the UK are generally small. I often have clients say they want a small wall portrait because they haven’t got enough space, which puts me in the up-selling position and their minds are already fixed on size.

Any suggestions how this kind of scenario could be handled better?

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Lori Stalter

I’m assuming since you’re calling them wall portraits that the pictures come in a frame? You could do a 3 or 4 tier pricing on the style of frame and matte per size.

Or you could upsell extra services like removing blemishes, stray hairs, braces, glare on glasses. etc. Base price is no touch ups, mid price is most of the touch ups and high price has it all.

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Dina Eisenberg |Speak Up Powerfully

Hey Pat, seeing is believing. Could you find the most common areas that clients would place the portraits (like the mantel, I guess) then create sample boards to show how worthwhile the investment is?

Sorta works on the same principle as staging a house for sale. You want someone to see how it could work for them, that they do have enough space.

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Jon

Hi Derek

Common sense says you have to start with a business plan. The business has to include some kind of projections. Realistically what are you selling and how many can you do.

In our circumstances the most we can do is one a day by ourselves, as we’re in entertainment realistically this is one a day over the weekend, further narrowed to Friday/Saturday mostly! Then factor in some seasonal variations and you start to narrow the field. Worse case scenario is 20-24 weeks of the year I’ll be busy. So I need to price to allow me to make a living off that period, anything else then becomes a bonus.

So it’s not based on cost or profit /loss, sure there are some costs to be considered, but by enlarge, as we offer a service, and that’s how we arrive at our prices.

I do charge slightly more than a lot of my competitors, not as much as I’d like too but I have found away to help identify which customer is which in terms of pitch/quote. It isn’t perfect but…

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Lorraine

So, does anyone know how this would work with products? We sell a combination iPhone/iPad granite stand that also charges both devices. It’s priced right now at $215. We have a single version of this just for the iPad. How would I structure pricing like your talking about?

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Alexis Grant

AWESOME video, Derek. Thank you! Just in time because I’m launching a new course this week — and was still hemming and hawing over the price, until I watched this video. Cheers!

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Joeal Manimtim

Hey Derek,

Awesome post.

I remember reading a story about this boss who asked her employee to mark all the jewelry that wasn’t selling to half price.

The boss left for the weekend and the employee made the mistake of doubling the prices.

When the boss came back to work, she was shocked to find that all the jewelry was sold.

In this case, the people didn’t like the cheap prices and were more interested in buying what they thought had more value even if it didn’t.

Perception is a funny thing :)

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Joseph Hughes

Joeal – there was an article in the Wall Street Journal a few days ago about luxury homes that are not selling. Instead of slashing the asking prices, the homeowners are raising them by up to 33%! I’m interested to see how this will all work out. http://on.wsj.com/OrSeLJ

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Matt Insardi

Pitch High and Watch Them Buy!! never be afraid to ask for the bigger sale. If you believe your product has value don’t undercut yourself.

Great video!!

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richwald

Hello,

I like your video.. But I have a webshop that sells one product. That product is also sold on other websites.. Guess what happens: price drops. competiton
How to stop that?

your thoughts?

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Ray Schaub

Derek,

When I was a teenager (quite a while ago), I was the manager of a factory outlet store that sold grandfather clocks. We were located on a street with other grandfather clock merchants. We would often get into markdown wars on our outdoor signage. One day I decided to post our full price as an experiment and we got a huge bump in traffic and sales! People openly told me that it increased their perception of quality.

I assume the same isolation effect works on text-based calls to action such as “Call now” as it does on links. Is there any difference in how calls to action and links should be treated on your website?

Thanks,

Ray

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http://www.christianlouboutinoutletonsale.co.uk

I simply had to thank you so much once again. I do not know what I could possibly have handled in the absence of the type of points shared by you concerning my industry. It actually was a very troublesome scenario for me, nevertheless encountering this specialised technique you solved it made me to jump over fulfillment. Now i’m grateful for the help and as well , pray you recognize what an amazing job that you are undertaking instructing some other people thru your website. Most likely you’ve never encountered all of us.

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Edu

Thanks Derek! I’ve implemented this on my spanish sites and revenue has increased aprox 160%! Great!

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Michael Yardney

Thanks Derek
Entrepreneurs, in fact most business people have difficulty putting a value on their services. Great information here and good food for thought.
having multiple packages makes good sense

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Brian Jaggers

This is exactly what I needed to hear at this exact time! Thanks Derek, you may have just doubled or even tripled my profit margins!!!

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Janet

I’m happy to find out that unintentionally I follow this strategy. I sell crochet baby stuff on Etsy and I have high end, low end and in between prices. I’ve just recently begun so I don’t know how this strategy is working for me, but it’s nice to know I’m on the right track. Plus I have plans to move into digital products and this is great info to be aware of. Thanks!

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Jimmy Rodela

Hey Derek!

Awesome video man! You killed it with the content. You mind sharing how you come-up with these genius new contents? It amazes me how your ideas are new and fresh yet seemingly very practical and “supposedly” common.

Shared your videos! Thanks!

Kind regards,

Jimmy R.

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Daniel

Awesome Derek,

I’ve done the mistakes you’re describing in the video but that won’t happen again, for sure.

Love that video!

/Daniel @ ForgetMeNutz.com

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Adam (Freedom Sentinel)

Wow, more powerful stuff. I am the idiot who always seems to pay the most expensive option. But I just went through the whole rationalizing a recent purchase based on the 2nd most expensive option (out of 6 options) and I did feel like I was getting a bit of a deal!

Thanks for sharing Derek, I have a few people I am going to share this video with as i know they could benefit from this info.

~Adam

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Brandon Bell

If you offer 3 options (restaurants use this with their top choice on the menu…”oh, I’ll go for the 2nd best at $40″) on my website, does that detract from the CTA?

As a startup, I’m struggling with options (1) minimize bounce by clearly showing customers where to go and minimizing clicks required to purchase and (2) leaving revenue on the table by not offering more options.

Would simply having a landing page with one button, then options on a second page be the best way?

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Josh

Hey Derek,
What is the website of the video guy you were talking about? Great video man. Thanks!

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Marcy

Interesting. Its counter intuitive that if people are not jumping on your current prices, to actually raise them. But makes total sense when it is explained. Nice video. Thanks!

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Ana

Very astute point about the 3-tier pricing. I have a 2-tier one now. I’m an editor and my rates are based first on type of editing (basic proofreading vs. more substantive editing) and turnaround time. This can be important in this industry where some clients will need the finished work asap and others can wait.

I know I undercharged at the beginning, basing my initial pricing solely on competition. So … I raised my prices. It is still a price list based on turnaround. My former “standard editing” rates are now my basic proofreading rates, my former proofreading rates have been dropped, my former substantive editing/rewriting rates are now my “standard editing” rates, and I’ve added premium rates for substantive and non-native English. I had a single monthly rate for blog posts. Would anyone advise having 3-tier pricing for blogs also? You know … one rate for short posts, a premium rate for very long posts and then one representing most standard blog posts.

This is a difficult industry to price. Competition is fierce. This is one field where perfectionism is part of what you sell.

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Peter Sundstrom

Great video. Sometimes, the seemingly obvious fundamentals of pricing aren’t obvious to everyone.

One thing I would comment on is having four+ tiered pricing model. Once you have more than three choices, you can run the risk of causing some confusion and doubt in the customer.

Obviously it depends on what you are offering, but in my experience you need to offer some choice, but subtly lead them to the “right” one.

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erin

Great information…and love the outtake!

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Pawel

I’m trying to think how such a pricing strategy would apply to the pricing of vacation rentals. Owners, myself included, typically establish their prices based on what the competition is priced at.

Would establishing 3 different price options work to increase the number of total bookings? For example:

$1000 per week – vacation rental only
$1500 per week – vacation rental + chef service
$3500 per week – vacation rental + chef service + snorkeling + golf

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Ana

… And then just last night don’t I happen onto a major competitor’s site. Her blog prices are cheaper than my former basic rates. Her overall pricing is cheaper as well. And you should see her site! I’m just a beginner in sitebuilding and it’s not live yet. There’s still so much I don’t know how to do. Hers is so damn professional and attractive … design really does help a lot, something research seems to bear out.

So now there’s a little bit of guilt about raising my prices. I’ve just as much experience in the service as she does — more even. But because I’m just starting out with not nearly as many testimonials yet … and my site won’t be as nice as hers … Do I now have to keep my cheaper prices “for now”?

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Paul Art

Nice Article..

I like it because its simple short and makes perfect sense.

Its not like other articles where the author types like three pages with hard to understand information..

Thanks Derek!!!

Have a good one!

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Amy

Solid argument! How would you apply this to a counseling/therapy practice with set fees?

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Kristin Horowitz

I hear this over and over, but my business is events like triathlons. I always wonder how you could apply multi-level pricing that arena. I have found that sponsorships they almost always take the lowest level, and I wouldn’t even know how to begin to multi-level price it for the athletes.

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Matt Greener

Pulling out of a hat or seeing what everyone else is charging and doing the same… ugh! The book “Smart Pricing” covers this stuff even more in-depth.

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Ana

I can see not depending solely on competitors’ prices. I can see making sure you’re making a good living. I can see studying the psychology of it all to make sure you’re not leaving any money on the table. But in the midst of all this … whatever happened to good old-fashioned competitive pricing?

You do have to be in the ballpark for your industry. If too many potential clients and customers can’t afford you, they’ll go to someone they can.

I’m not bargain basement by any means, nor do I believe in being bargain basement. I’m still raising my rates. But my profession is too competitive for price not to be a major consideration for clients, especially these days.

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Matthew Defeo

Wow. Great information Derek. However I was wondering where did you get this information from? I would love to read some of the research that went into this and do my own studies!

I have never heard of any of the information you described in the video and was a bit taken back because I do exactly what you mentioned when comparing pricing when purchasing something online.

I am tweeted your post because I found it so useful! Thanks again!

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Taryn Lund

Hi Derek,

I found this incredibly interesting. Thanks for putting this out there! I’m wondering if you think there is a way I can apply this to my own business… I offer home staging, organization, and redesign. My current pricing strategy is simply hourly, and is the same for all services. $300 for an in-home consultation (which includes up to 2 hours of my time) and then each additional hour is $75. It seems people are interested up until I talk to them about pricing, so I have lowered the costs several times thinking that would help (and have even offered half-off consultation specials). Any advice you have is surely appreciated. Thank you!

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Richie

@Mathew Defoe
There’s a pop psychology book called “influence” by Robert Cialdini, that goes into details about the law of contrast and comparison.
This article just uses a different example.
In the book Influence, Chialdini found that when a customer was shown an expensive suit before being shown a much cheaper sweater, the customer was much more likely to buy the sweater after seeing the price of the suit than he would have if he only saw the sweater.
The video is a decent explanation of the law but way oversimplified. If your selling products on the web you can’t just take your own products in to account.
Your customers are not only going to be comparing the price of your companies products against each other, their going to be comparing them to similar products all over the web.
If you have a product your charging 2,000 dollars for, and another that your charging 500 dollars for, the 2000 dollar product needs to be better than all the 500 dollar products in your niche and not just the
500 dollar product you sell.
If you make a premium product that can be found for much cheaper elsewhere your clients will be pissed and less likely to buy from you in the future.
A lot of marketers are finding this out the hard way.

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Angela

Okay, honestly, I’m a hard sell. You’re significantly younger than me, you’re kinda loud (I work in a university library — shushing the likes of you, man), there’s no lovey touchey feely…. But you know what? I LOVE YOU! There’s no crap, you’re right to the point, when I turned away from your screen to plug in my cel phone you paused and told me to pay attention…. I did not expect it, but I’m hooked!
xx
Angela

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clement

great video, thanks for it. I’ll apply your advice asap

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Lian Havro

I’ve heard this strategy before but have forgotten. Thank you for the video and this is just what I need to do for my biz.

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David

Thanks Derek for being so specific. A great idea which I’ll implement.

In regard to your question of how I choose my pricing – currently I tend to test which price works best by displaying various prices over a period of time, and then I settle on the optimum price.

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Raiyan

Middle Pricing model is the best one. I second it. Right timing Derek I’m about to price my eBook.

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Bev

I have already been using this tiered strategy (yea!) but one thing I have been wondering about is the order of presenting my package prices (on a printed price sheet). Does it make the most sense to put the expensive wow package first and let the client read down to the lowest, or start with the low one and ease them up the price ladder and probably out of their range??

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Dr. Samantha

It seems so obvious to have tiered pricing but the psychology behind it never crossed my mind.

I’ve got a very successful service business and am about to launch a web arm to reach more people with what I do. We tried to match pricing to existing services then scale other products but this now has me thinking in another direction altogether. Many thanks, Derek.

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Iris

I hope this is not the dumbest question on the interwebs: What if you only have one product? Not three packages? What psychological processes would be going on in this case?

Thanks.

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Erin Voth

Brilliant! I’m about to launch a new product on my website and after watching this increased my third package price x4 of my basic package. Will see how it goes in the coming months.
Derek your the man!
Cheers
E

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John

I gotta tell you, I really don’t like your personality, but I love your method and pricing logic all the same. Very well done. And yes, I subscribed to the newsletter and YouTube. Thanks!

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Rachel McEneaney

I love this post Derek!

Super bookmark worthy content.

Please consider adding G+ share option.

Can ANYONE recommend a PAID or FREE tool or TEMPLATE to use in Word or Excel that makes attractive price packaging EASY and FAST?

This would be great to speed up PROPOSAL MAKING!

Thanks!
Rachel

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Jon

Hi Rachel

Don’t know about word or excel – but I use a great package that isn’t that expensive to respond to all my quotes. It made by Sliq Tools & called Sliq Invoicing Plus. Support is great and they listen to development requests. I’m hoping some more of the suggestions I’ve made (they’ve implemented some already), will move it closer to a full CRM. But as a standalone invoice/qquote package for what it cost it’s great. http://www.sliqtools.co.uk/

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Lora Krulak

BRILLIANT and perfect timing – thank you. You rock, once again.

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Donah D.

Such a useful video/post and definitely will help me on my blog in terms of pricing the services I have been planning to offer in the future. Thank you very much Derek.

(P.S. I also love your loud-talking self. Very convincing and confident, which makes people listen to you more. Keep it up!)

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JenDe

Here’s a tip – when you use profanity and slang in your videos, the trust level on the information you are trying to convey goes down with your audience. Your obviously smart with a lot of good information. No need to make that rookie content mistake and shoot yourself in the foot.

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Sherry Duffy

Brilliant! I’ve always made this very simple mistake but I made a point to watch your video last night before writing a proposal. Well, I nailed it and ended up agreeing on exactly the price point that I wanted but without all of the back and forth that comes along with trying to negotiate a fee. Thank you so much for saving me time, energy and helping me make more money!

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Cath

Love It Derek! Now to implement…

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Jantje

Cool video!
In fact, I have stumbled across this concept via Nathan Barry last month, and I cannot wait to implement it for my first product launch this autumn! Thanks for clarifying the details!

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Margaret

This confirmed what I was already thinking: a hard cover copy of my book, a soft cover and an e-book. Thanks!

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Jodi

Derek,
Your concept of 3 prices makes complete sense, but how would I structure that when selling jewelry wholesale? I currently offer 50% off the retail prices when they spend over a certain amount.

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TY

This truly is a great video Derek! What you say makes perfect sense but how would it make sense when you’re offering consulting services. As an Apple Consultant, how would several packages make sense when most people expect to pay by the hour. Would setting 3 different hourly rates make a difference? If yes, what would be the differentiating factor? After all, it’s still coming from the same source (me). I also offer fixed pricing for certain setups (servers, media servers, remote support, etc) but for almost everything else it’s hourly. Any insight would be great. Thanks again for taking the time to put this out.

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Dave

Hey Derek,

Very cool concept – my question is how could I apply this to hourly computer repair?! I live in AZ where the general economy is still poor and people really CAN’T afford a lot right now….

Thank you!

Dave

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Lindsay

Great advice Derek. Love your energetic presentation and your ‘out take’ at the end of the video. Nice touch!

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Laya

Hey Derek,
Why did you use only a two option pricing strategy for your upcoming workshop Blogs that Convert? Monthly payment or pay all now savings looks like the only strategy.

Thanks. Good info here.

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Kollin

Hello Derek. This was quite interesting, inspiring and loud. I don’t think people are particularly aware of this strategy. But I am definitely letting them know about social triggers. I hope i see more of this issight in the future.
Twitter: @kollinsayz

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George Siblesz

I hadn’t thought about it before but this is very true. I am in the process of overhauling my social networking site which is geared for a specific audience. The idea is that we create a social networking site so valuable, so easy to use, and so convenient, that people pay for a premium version. After watching this video however I’m definitely going to rethink my pricing model.

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Rob

The problem here in Germany is that this country is the “cheapest” in Europe, when it comes to products.

People buy the cheapest food (compared to all other countries in Europe) and are heavily into discounters. The TV Commercials here react on it and one of the worst ones which changed the minds of the nation was from a chain calles Mediamarkt which sells electronics.

They started with a campaign which said “Tight is Right!”. And this had the effect that people started to look for the cheapest prices ever.

This changed their attitude extermely and I regulary meet potential clients (I’m a web designer) who want a cmas-based website for 500 euros. Including interactive contact forms, fancy slideshows, responsive (optimized for mobile devices so the site can be seen and used everywhere) and many more features.

When I tell tham that this is unrealisitc, they are pissed-off and I just tell them that they should take an online service like Wordpress.

People have less money here (due to our government) and people have absolutely no clue about what it takes and neeeds to develop a decent website.

They still believe that making a website is (someone really said that to me) just a bit of HTML.

Times are rougher and I am sure they wont become better.

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Hernando Cadet

I really enjoyed your, and as a new member of your email list, I am looking forward to seen your material and advice, I am ready to begin growing my traffic.

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Dennis J. Smith

You should come back to Seattle and do an online class with CreativeLive on pricing strategy with some of the other experts like Nathan Barry, the guys at Fizzle.co and a few others.

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Dennis J. Smith

Brennan Dunn is another that comes to mind.

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Christy Richmond

Derek,
It’s like you were speaking directly to ME! Your call to attention hit me at the precise moment that I needed it too! As a newly certified holistic health coach starting my own coaching business, I need what your videos are providing!
Please keep it UP!
Cheers!
Christy

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Sarah Dizney

LOVE this video and info!!! SOOO helpful and interesting! I didn’t know about this “phenomenon” either…. now I do… thanks!

Sarah

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Susan Seale

Thank you for this!!!

Also, my husband tells me my eyebrows do the same thing.:)

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Desiree M. Mondesir

Dear Derek,

You’re brilliant.

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Geraldine

Hi Derek,
I love the video and I’ll apply the 3 or 4 pricing cartegories on my products.
Usually, I tag prices according to total cost, timed taken and then add a desired profit which is a little bit less the worth, because I think that I should give more than I receive.
What do you think Derek?

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renee

You are right! It is exactly how other web platforms are doing. Shopify, mailchamp etc etc

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Alex Jacobo

There’s no “love” button for this video.

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Rado

Hey Derek,

I used 3 different prices but the thing is, there are actually 2 products only and when I set the prices, I wasn’t thinking about the margins. I am currently in a situation where the COGS is $30 & the product is $60, 50% margin which is hUge and the other one, $65 COGS & $200 price which is just too big. The tricky part is, my team has a presentation tomorrow where we are making a pitch and I need to justify the prices :X I’ll probably try to back it up with:
-innovative product
-high prices on competitors
-it’s optimistic estimations and I’ll say the pessimistic one.. hope it goes well

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connie curtis

Great information. I am looking how this would work for me. I am on a e commerce site we offer a digital food allergy training service. I have a course and thinking about offering ones for individuals.. The thing we are concerned about is the restaurant staff take the individual one if it was at a lower price than the one for restaurants. Any suggestions on this scenrio. Not sure how I would have another price point since there isnt a third package..

thanks,
connie

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Coral

Very interesting, indeed. I have 3 price categories, but they are not made public. I’m a freelance Graphic Designer. My main rate is $50/per hour for the average client. I try to sell this by showing that I’m 50% less than a regular design studio but create the same (if not better) quality of design work and explain the savings come from having no overhead since I work from home. I give a discount ($35/hr) for friends and family, and I only charge $25/hr for “brokers” (those who consistently send me at least 5 hours of work per week). Anyway, since my rates are hourly, how would you suggest advertising the different price points? I’m eager to know what you think because so many potential customers shy away immediately when I state that I charge $50 per hour–it doesn’t even matter that other places charge $100/hr for the same thing because, as you said in another video, they all claim they can “get it for free” somewhere else. Thanks for your input!!

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Diane Dennis

Hi! Excellent video, thank you! I love watching your videos. :)

I followed the instructions – watched the video and then checked my email for a link to the pricing video but I’m not receiving the link so I can’t get to the pricing video.

Can you please help?

Thank you so much!

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Diane Dennis

Please can you help me to get to the next video? I’ve listened to the one above a few times, as well as listened to it at YouTube, but I still can’t get to the next video. Thank you so much!! Diane

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Diane Dennis

Okay, never mind. Thank you anyway.

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Michelle

Thanks for the information. I do already use the 3 price option. However, it is for different levels of service. I JUST changed my prices to use the 9 ($24.99) as opposed to $25. My price for my services were not pulled out of a hat, they were based on how long I had offered the service and the length of time it takes to complete. Pretty cut and dried.
I am interested to see what else you have up your sleeve. Thanks again!

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Donna Killian

OK, you totally have my attention. The exact things I’m working on are what you are addressing. You’re speaking my lingo. Keep up the great work, you are inspiring in your delivery and information and give me a shot in the arm that keeps my passion running high. By the way, love the eyebrows (
> ))
(

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Sandra Weisner

I’ve heard of this concept and have actually applied to another business. I created 5 packages for weddings. Most couples chose the middle package. People like the opportunity to make a choice, it gives them a sense of control when making a purchase. Will continue to read and watch your material.

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carine

Hi Derek
as for me, I decide on my prices with the study of the competition. If I have a similar product, I price the same. If I have a product that nobody else has, I set up a high price and do some sales frequently if I don’t sell enough. I didn’t want to have me stuck with a low price and cannot increase after. I prefer start high and lower if necessary with sales.

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KaZ Akers

Hello Derek,

This is what happens in entertainment. Say you want to hire a band – one band quotes a low price, the other band quotes almost double the first band’s price. Nine times out of ten the higher quoted band is hired BECAUSE it is assumed if you command a higher price then you are better than those who command the lower price. It’s holiday time and you need a band, expect to pay more. Performing outdoors, again expect to pay more. These are extenuating circumstances for musicians and either busy times of year or times when weather (cold, wind) can be a factor. For my business and success coaching, I have found if I charge that “introductory” price, it will always be expected in subsequent sessions, even if I have let them know it was an introductory price. OR if I charge “elite” prices, it narrows down my client options to those who like to pay large amounts for services not because it is the best service but because it sounds really good. Plus there are a LOT fewer of the “ego-spending” clients. However, with good, solid middle of the road pricing, not low, but not really high, even those who have less expendable income find the way to get it. Thanks again for more inspiration! KaZ

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Jon Conley

Hey Derek! Great advice! Of course, I have yet to follow it! Starting tomorrow, I will begin to implement what I read (and heard) to boost my marketing campaign and try to increase sales and traffic.

I own and operate a soap company that I run from my home. I sell online and go to shows and events to sell as well. My prices are a general mark up of 4x. Meaning, it costs me $1.00 to make a certain product, then I retail it for $4.00. Wholesale pricing is 2x. Then, I usually give price breaks for sets. For example: I sell a bar of handcrafted soap for $5.50. A set of 3 bars sells for $15.00 retail.

Is this the correct line of thought? It’s plenty of profit margin.. if it sells.

We make great products, but that doesn’t always sell by itself from what I’ve learned the last few months.

Thanks for all you do!

~Uncle Jon

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Mansoor

Hey Derek!

This is so AWESOME.
I’ve already been doing price catering to each customer segment by offering different packages with variety of options like bonus, additional stuff thing.
YES, people do love discounts and bargains.

Again, what a beautiful video reminder.
I’m going to revise my pricing strategies, now !

You take care.
Mansoor

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Cheryl

Good stuff! Do you think this would work for a cost plus contract? Offering 3 different percentages / packages for custom home building? Thanks

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Sean

My situation is slightly different from probably everyone else here. I’ve been living in China for almost 6 years, and my business (I’m in the process of building the company now, just getting my minimum viable product ready for the client testing phase) is related to personal growth and development (geared towards Chinese people). It’s been difficult for me to come up with pricing because this industry is very small, in that it’s very new and over 95% of the population has no clue about psychology or pursuing personal happiness. As a result, I only have the other people doing this in China to look at, however they are Chinese people speaking Mandarin and catering to Chinese people using their knowledge gained in China (which is a whole other story I don’t want to get into). As a result, as the first non-Chinese to enter this industry using Western knowledge and practices, and teaching it to an English-speaking audience, I felt my prices should be double that of the others in the country.

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Dejana

Hahaha! You’re so funny. And yep, I guess i was one of those ‘idiots’ who didn’t know the bread story- until now!!:)

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Catherine Ruehle

Great tip! Just discovered you via the B-Schoolers Facebook page, loving all your simple yet sage advice! #smartboy

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Curtis

How we came up with our pricing structure:
First of all, we sell socks and sock subscriptions.
My first step was finding socks that we liked and felt comfortable selling to customers. We needed something that was a great sock at a fair price.
Once I found the sock costs, I packaged them as if I were sending them out. From that, I took the cost of the postage and added that in. So now I have the price of the socks and the price of the postage. I did it this way so that people know what they are paying up front, instead of going to check out and then the shipping comes up. If you all think it would be better to do it that way…to not include shipping, but have it come up on check out, I’m all ears for advice.
After having those two costs, I calculated in my material, website and utilities.
Once I had all of these calculations put together, I needed to decide what my time was worth. I had to consider a lot of things; what will a customer pay for my time/product, how long does it take me to purchase, package and ship each product, and the perception.
After testing out a couple of different prices, I ended up lowering the prices to where they are now.

That’s the basic way we came up with our pricing structure.

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Brooks Palmer

Hi Derek,

I just discovered that you exist a few days ago. Thanks for the free info! The info on pricing has me thinking. I help people let go of clutter in their lives. I changed the prices for my business over the years. When I started I just picked $25 an hour. Everyone haggled with the price. Over time I raised it to $35 an hour. Then $50. No more haggling. I worked a lot. Then $75, then $95. A lot less work. Then I got sick for two years and couldn’t work. To reintroduce myself, I charged $25 for a month. Then $40. There were a lot of clients. Now I offered a pack of four for $150 and did okay. Now it’s slowed down. I’ll see if I can think of three packages like you suggested.
Thanks again! I like the quality of your videos, plus you’re entertaining!

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Spencer Goldade

Wow, this is such a good reminder. If I’m working on an ebook, as well as other resources, this makes me wonder “why sell them separately?” I could offer them standalone, but also offer a discount to buy them together, or throw in other extras. Just adding options can help a ton.

I’m wondering if there’s ever too many options though?

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Bill

Derek,
You’re so correct on the theory of people must have a choice, and it reminded me of my Father. Years ago my Dad had a book called “Country Store Keeper” which took place back in the late 1800s/early 1900s. The author, and store keeper, wrote about buying a barrel of wine. He couldn’t sell much, because he had just one type. So, he divided it into (3) different jugs, all with their own price. Some folks bought the cheapest, some the middle of the road, and some the most expensive. The funny part is, that everyone found the taste of all (3) to be different! And, he sold a ton of it!

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Shane Liebich

Derek,
I don’t know how I found you but I’m glad I did and thank you.
I’ve been involved in sales and marketing for twenty five years now and I’m still learning something new (or maybe I’ve forgotten and it seems new haha).
I now have another idea of promoting a new product thanks.
Shane Liebich

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Joseph Montes

Love the 3 or maybe FOUR products and pricing. Will be applying this in my next product launch.

Thanks SO much,
Joseph

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Alex

Thank you Derek! This video was extremely helpful. I was pricing things completely wrong! I was giving out a single price for my consulting packages and I’d get the crazy hagglers all the time! I am changing this to what you had mentioned in the video! Thank you once again!

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Melissa G Wilson

I sell business and non-fiction book ghostwriting, packaging and publishing services with lots of marketing baked into the process. What does this look like? It’s a turnkey operation I sell at an up-front package price of $30,000, or two payments of $17,500 within 60 days or five payments of $8,000.

It’s worked well to get paid up front but I decide, after watching your video, to add a high-end offer for $60,000 for those who want me to handle their book and provide a website and three-month launch campaign for them. I’ve been doing this now for four years and it’s been working well with 10 or so authors a year. I welcome any other variations on pricing and suggestions. I do know ghostwriters elsewhere charge $60,000 – $100,000 just for the ghostwriting but I’m not sure how to position that high of an offer.

My clients are executives from small to Fortune 500 companies and I am growing by referrals but I’m stuck. By the way I also help a number of them acquire an agent and, so far, they have all been successful in getting publishers. This service is also part of the original fees I shared. Ideas are welcome.

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Laura

Love it! Thank you.

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Ronsley

Dude… awesome video… I have a short attention span and I still went all the way to the end (love the eyebrows… no that doesn’t mean anything)

Anyway, it gives me a crazy idea on how to price my products. I am on the list and I’m sure you’ll be hearing from me. Great work Derek!

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Eddie de Jong

Makes a lot of sense. My prices (for books) are based on pricing of similar books. I do however always bring out a boxed set that works out cheaper than buying the books individually.

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Mike Nichols

I’m going to put three prices on my site for the very reason you mentioned. First I need to figure out specifics as to what’s included in the packages. As I have various packages to offer.

But thank you all the way from the United Kingdom!

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