How To Set Your Prices To Make Million Dollars In A Year

0:02Zach, nice vacation spot, but without T-Mobile 5G home internet, it's scary here. Don't open it. Relax. I ordered T-Mobile 5G home internet with same-day delivery powered by DoorDash. Nothing to be afraid of. We're saved. Get T-Mobile 5G home internet delivered the same day. Powered by DoorDash. Just 35 bucks a month with auto pay and a voice line. Plus taxes and fees. Same-day delivery for most internet eligible customers. See if it's an option during checkout. You know that feeling when there's a spark building inside you? That you were meant for more? That's your own drive pushing you towards what's next.

0:37Capella University gets that. With their FlexPath learning format, you can set the pace and earn your degree without putting your life on pause. You've built experience and you know what you're capable of. Now, this is your time to turn that momentum into more. The only real question is, what can't you do? Learn more at capella.edu. Let me ask you a question. How much do you want to make this year? Not a vague number, a specific number. Because here's what I've learned after 20 years of building businesses. Most people set their prices based on what feels comfortable to charge, or what they think the market will accept.

1:14Or they base their prices on what the competition's charging. And then they wonder why the revenue number at the end of the year is nowhere near what they actually wanted. The problem is not how much you're hustling. the problem is not even your product. The problem is your pricing strategy. And that's what today's episode is all about. How to price your products so that you do get the revenue that you're looking for. Today, I'm going to give you the exact framework I've used over the years to set all the prices to my products and services. And you'll be able to set prices with intentionality, meaning it will get you the number that you want, not the number that feels safe, the revenue number that you actually said 30 seconds ago.

1:54Let's get into it so we get you to your actual goal, how much money you actually want to make this year.

2:05Welcome back to the$100 MBA show. I'm your host, Omar Zinhome, where I deliver practical business lessons three times a week, Monday, Wednesday, and Friday to help you start, grow, and scale your business. I got a quick favor to ask. If this show has helped you in any way. Leave me a quick review. You could do so wherever you listen to podcasts. This helps me and my team reach even more people who need the same no-fluff practical business advice that you're getting from the show. It only takes a few seconds, but it makes a huge difference. Thanks for being a part of our journey to help others on their journey.

2:42Let's start with step one, and we're going to work backwards from the number you want. Most people set prices, then they calculate how much they're going to make. No, you got to do the opposite. You got to start with the number you actually want to make at the end of the year. This is what I mean by working backwards. You start with the goal in mind. I want to make a million dollars in revenue this year. Okay, great. How will you make a million dollars? Let's roll that back. Let's figure out how we can set our prices accordingly so that we can reach this goal. Here's the exact process. Pick the annual revenue number you want to hit.

3:15Let's say it's$1 million, like I just mentioned. Now, ask yourself, how many customers do I need at my current price to hit that number? If you charge$1 ,000 per customer, you will need 1 ,000 customers. If you charge$10 ,000 per customer, you only need 100 customers. Guess what? If you charge$100 ,000 per customer, you only need 10 customers. Same revenue, completely different businesses. The higher your price, the fewer customers you need. The fewer customers that you have means less operational complexity, less support burden, less team required, and more margins to invest back into your business.

3:56And also some margin for you to keep some money in your pocket. Now, the second question you want to ask, and this is often the question no one asks because they just think, well, I can't sell expensive products. Here's the question. How do I make what I'm selling valuable enough to charge that price? That's the right question, not what can I get away with charging? Okay. What do I need to deliver to justify this price? A lot of people come to me and they say, hey, Omar, I know you said to raise prices, but I don't know if anybody's going to buy if I raise prices. Well, what if you raise the value?

4:32If you increase what you are going to provide to the customer, you can raise prices. Again, the question is, what do I need to deliver to justify this price? I mentioned my buddy, Patrick Campbell, who was the founder of ProfitWell, which was a company that he sold for over$200 million. And the whole business was pricing. He was the pricing expert. He's still the pricing expert on the internet. People come to him to figure out how to set their prices. And I worked with him when we were working on Webinar Ninja and our prices with our software company. He taught me something that changed how I think about pricing forever.

5:06And here it is. It's very simple. People will pay more if you give them more of what they want. People will give you more money if you give them more of what they want. Think about this from a practical sense. Think about business class on an airplane. There are two lessons in this example, okay? One, sometimes business class is like five times as much as economy. The plane is the same. The destination is the same. The pilot is the same. but the experience is completely different. People will pay for that difference. Not everyone. So the second lesson is not everybody thinks like you. Okay, maybe you won't pay for business class.

5:46Maybe you won't pay for something that is marginally better than something else. You won't go for that. But there are plenty of other people that will. Too many people set their prices based on what they would pay for rather than what other people would pay for. The other thing you have to remember is that money and prices are relative. Think about it. You buying something that's$5, let's say, for example, you buy a sandwich from Subway for$5, it's nothing for you. You don't even think about it. It's a purchase that doesn't require much thought, okay? But$5 for somebody that is in rural India could be their monthly salary, okay?

6:19That is a lot of money for them. So it's relative. Just like you seem rich to them, there are people that are richer than you or that have more disposable income that are willing to pay for a business class flight without thinking about it. The other thing I learned from Patrick was that pricing is not something that you set and forget. Pricing is a constant experiment that needs to be tested and refined until you find what you can do to optimize the revenue and profit in your business. Again, the whole point of these experimentations that you're doing with pricing is to find out how you can make the most revenue and profit, not just revenue, how much money you're going to keep.

6:54Let me give you an example. Mazda, right? They sell cars. Mazda sells millions of cars a year worldwide. They sell a lot of cars to a lot of people. But Porsche, on the other hand, sells a fraction of what Mazda sells. They have less customers, but they make 10 times as much. They're a multi-billion dollar company. When it comes to car manufacturers, they're winning the game because they're making more profit. They're making more revenue than Mazda. despite the fact they have less customers, despite the fact they have less sales. So how can we apply this to you? I wanna give you an exercise that you can do today.

7:31Write down, literally with a pen and paper, write down the annual revenue you wanna make. Write down your goal. Now divide it with your current price. Look at the number of customers that are required. It might shock you, okay? Now ask yourself honestly, is there a higher price point that would get to the same place, the same revenue that you're looking for with fewer customers? What kind of margins are they? What kind of profit are you making? What do you need to add to improve or justify that price? So say, for example, you realize, oh man, I'm going to need 3 ,000 customers at my current price point.

8:07Well, what if you doubled your prices or tripled your prices or quadrupled your prices? Let's say you were forced. You had to 10X your prices. I know this sounds insane. Like you sell a product that's$100, but now you got to sell for$1 ,000. Okay. What would you have to change about that product? What would you have to offer to your customers to justify that new price. This is an incredible thought experiment that I've done over and over again. And I realized, actually, you don't have to do much. You actually have to just continue to add value to the customer, show the value to the customer, and then you can justify the price.

8:40Because the second part is just as important, the showing the value. Because you can have a very valuable product, an offer, but if your customers don't know that value, they don't understand how the price makes sense. Step two, stop selling to price sensitive customers. Please, please, for the love of God, stop selling to people that don't have money. People that don't have money are the worst customers in the world. And I am one of them in the past, right? I didn't have money for a very long time in my life and I was incredibly price sensitive. It was not my fault. I didn't have much money. But as a business, when you price your products too low, you are attracting these types of customers, price sensitive customers.

9:18Nothing wrong with them. I'm sure they're nice people, but they make very difficult customers. Let me get very specific about what I'm talking about here. I'm talking about people who choose you primarily because you were the cheapest option. When people are shopping based on price alone, you are on a losing battle because when it comes to price, there is a floor, meaning at some point you can't go lower than zero. You can't give away the product for free. You can't pay them to take your product. So there's really no way to go beyond that. But with higher prices, it's up to infinity. Have you been to a Louis Vuitton store?

9:54Have you seen the prices of the most simplest products like a wallet for$7 ,000? The point here is that you don't want to compete in price because you will lose this battle. Price sensitive customers are the most demanding, most difficult, most time-consuming customers in any business. They question every invoice. They push back on every scope change. They are trying to nickel and dime you for every little thing. They compare you to cheaper alternatives and say, hey, if you don't lower your price, I'm gonna go to the competitor. I spoke about this before, but these customers, they'll drain you.

10:24They'll drain your energy. They'll drain your motivation. They're gonna make it very difficult for you to get up in the morning. I've experienced this directly when I was building my web agency, when I moved from Dubai all the way to New York. I left my teaching career and I started my whole new life as a full-time entrepreneur. I started out with$1 ,500 per website. I've mentioned this a million times, but I'm going to say it again for this example. But$1 ,500 per website. These clients were the worst. But once I changed my prices, once I started to increase my prices, I doubled them and then I nearly tripled them.

10:56And then eventually I got to the$5 ,000 per website price point. And that changed everything. The clients were easy to work with. They trusted my process. They paid on time. They're for other like-minded, not so price-sensitive customers like themselves. And here's the killer thing. This is the kicker. This is the thing that makes it so crazy. I was not doing anything different. Same work, right? I was creating the same types of websites, but it was a completely different experience and I was making more money. It's like I was abusing myself. I created this problem for myself by pricing my products too low.

11:27So here's an exercise I want you to take on so you can implement this right away. Look at your current customer base and identify your best customers and then the ones who pay you well, the ones that refer good people to you, you get good clients from them. Figure out who they are, where they like to visit online, what are the other products they consume, what other types of problems they have, what do all these customers have in common? You basically want to do a deep research on who these people are. Why? Because you want to find people just like them. You want more of these people. These are the people you want to grow with.

12:01Now, I guarantee you that when you look at your best customers, the ones that you love, they are people that paid you the most. Maybe they bought several products from you. They're probably their best customers because they are already sold on what you have to offer. They don't need convincing. So what's stopping you now from raising prices? And remember, you can always change your price. If something happens and people don't buy or your craziest nightmare happens where your business goes out of business because you change your prices, then you can always change it. And I'm telling you right now, in the last 20 years of doing business, every time I've increased my prices, that never happens, right?

12:35The exact opposite happens. My business grows and I make more money. But I'm telling you, like, the mentality you have to have is that I can always change this. This is not like a permanent decision that I can't change. It's smart to always have a few financial goals. And a really smart one you can set? Earning cash back on what you buy every day. And with Discover, you can. Get this, Discover automatically matches all the cash back you've earned at the end of your first year. Seriously, all of it. And we trust you to make smart decisions. After all, you listen to this show. See terms at discover.com slash credit card.

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14:18That's Upwork.com to connect with top talent ready to help your business grow. That's Upwork.com, Upwork.com. Step three, I want you to price for commitment and not just revenue. Here is a pricing principle that I've applied to our program, the$100 MBA that shaped our entire business. You want a price that is set so that you can get people to commit to your ideas, commit to your business, commit to being a long-term customer. Because commitment is a filter. When I price the product for$100 a month, it's done intentionally. Why? Because I'm not just picking a number out of thin air. I'm choosing a price that attracts the people who are serious, who are willing to put some skin in the game.

15:07$100 a month is enough skin in the game that people who join are committed to implementing what they learn and getting results. I want results so I can get testimonials, so I can share those on my website so that I can get more customers. I don't want dabblers. I don't want people to sign up and never log in. I want people that are actually going to do this. And if they don't pay enough money for them to feel like, oh, I don't want to waste the money I spent. I need to log in. I need to do the materials. I need to follow through with what I learn. Then I'm going to have customers that just are worthless to me beyond the money.

15:41You want customers are going to be evangelists. They're going to tell other people. They're going to get results. They're going to give you testimonials. So they're going to give you referrals. At the same time,$100 a month is not so expensive that someone who's just starting out can't afford it. It's not prohibitive, right? It's the price of a nice dinner out. And if somebody's not willing to part away with one nice dinner out a month so they can change their business, their life forever, then they're really not meant for my program. So this is what you got to think about pricing. Who do you want to attract?

16:09How do you want them to commit through pricing? And you want to balance. And I'll give you another example. I used to run these weekly events, workshops, when I was living in New York City. And I was experimenting with price. And what I found is that any price for any kind of event, and this event was, the whole point of the event was I would give a workshop, and then at the end of the workshop, I would share with them some of my services, like my website services and helping them build their brand. And the whole point is to get them to become a customer. But whenever I made the event free, the show up rate was a whole lot less because it's easy to cancel on free.

16:42But even when I charged$5, just$5, just a ticket price, the attendance rate skyrocketed. Like 92 % of the people that signed up would go. On the free side, if somebody signed up and it was a free event, I would have show up rates of closer to 50 to 55%. So it's a massive difference. So even experimenting with free versus paid is something that you want to look at. I want you to ask yourself about every product you sell. Does this price attract the customer I actually want to serve? Do I want to spend time with these people? Because by the way, your customers are the people that you're going to spend the most time with, people that you're going to serve every single day.

17:19Or does it attract someone who I will not want to work with, right? Who I will blame them whenever I'm having a bad day, right? Who do you complain about when you're having a bad day? Often, sometimes it's bad customers. And those are the people you want to kind of fire. You want to fire bad customers. I want to give a shout out to Michael Port, who wrote this book called Book Yourself Solid. I read this book early on in my entrepreneurial career. I then got to meet him at a dinner one day, and then we became fast friends. And we went on holidays together. He let me spend time a weekend on his yacht, which was crazy.

17:51I couldn't believe it. By the way, never buy a yacht. It's a lot of headache. But the point is that Michael taught me this concept called the red velvet rope policy. You know, like at a nightclub or a VIP event, they have the red velvet rope that they open and close for the VIPs. Well, you want to do that with your customers. You want only the best of the best to come through the velvet rope. You want to prune your customers. And one of the best ways to do this is to do what I mentioned earlier, is to raise prices. Once you raise prices, they're going to just kind of exclude themselves and they're not even going to ask to get through the velvet rope.

18:25So as an exercise, I want you to review the price of your core offer in your business? Is it high enough to filter out and make sure you only have committed customers? Or is it low enough to make sure that your customers that you want to attract, it's not prohibitive. They actually can afford it and it's not too much of a stretch. If someone pays your price and does not get a result, is the price you set part of the reason why they didn't get results? What do I mean by that? Well, a lot of people, for example, sell online courses and they sell these courses at a pretty low price. And if they buy the course and it wasn't that expensive, they may not be too bothered to actually want to implement and actually learn and go through the whole course and complete it.

19:10So, but what if that online course was$5 ,000 and they bought it? You bet they're going to be like, I'm going to watch every single second of every single video, do every single exercise, ask as many questions as I can in the community and implement everything exactly the way the teacher taught me. Because it's$5 ,000. You know, I could have went on holiday with that money. So your price has a lot to do with the results your customers get. I'm telling you right now, you could actually think of own examples in your life when you pay for something and you're like, I'm going to get the most out of this, right?

19:40Like an expensive dinner, for example, you made sure that you wiped your plate with all the bread and made sure all the sauce is taken care of, right? The point here is, is that you want to get the most out of your dollar, but you have to actually have a price that is worth actually wanting to get the most. Hey, I hope this framework is already showing you where your pricing is costing you money and how you can start making more of it. The next step I want you to take is to subscribe to the show. We have an upcoming episode that I don't want you to miss. It's called How to Motivate Yourself to Get Things Done.

20:11This is one of the most common questions I get asked. Omar, how do you motivate yourself to do what you do every day, to be consistent with the podcast, to build your businesses, to manage your team? Sometimes I just don't feel like doing it. Well, my answer is on that episode. And my answer might surprise you because I do believe the answer is going to actually give you an answer you may not expect. Maybe an answer that will make you question if you should be an entrepreneur in the first place. So hit subscribe because I don't want you to miss it because it's the honest truth and I can't wait to share with you.

20:41Step four, raise your prices without losing your customers. I know what is happening in your head right now. I know right now you're thinking, Omar, this all makes a lot of sense. and maybe this is good in theory, but in practice, if I raise my prices, I'm gonna lose my customers. Let me give you a strategy that removes almost all the risk, right? And I've learned the strategy from people like Patrick and others. And this is one of the things that I wanna pass onto as a gift because it took me a long time and a lot of heartache and a lot of lost money through this process to learn this. So here we go.

21:17The annual price increases. What do I mean by that? I want you to increase your prices every single year. What? How does that work? Well, here's how it works. I want you to pick a date in the future. And I think a nice number, a nice date is January 1st, the beginning of the year. So January 1st of 2027, you're going to increase your prices. Now, guess what? This is going to become your new sale. You're going to communicate to your audience clearly in advance that prices are going up on January 1st. Now, many businesses, what they do is they make this announcement during like Black Friday, during the holidays, because it gives like a window for customers to buy before the price goes up.

22:00So here's how it plays out. And I've done this several times and it's an incredible strategy. And this is why I'm sharing it with you. You communicate to your audience clearly that the price will go up on January 1st, for example. And you say that this is the last time that the prices will ever be this low because every year they go up. This is not a threat. This is not a pressure tactic. It's just a fair warning. And actually, customers appreciate it because you're going to have a lot of people on your email list and that follow you on social that have been interested in what you have to offer, but haven't really had a good enough reason to buy now.

22:32Okay, here's a good enough reason. Why? Because people don't like missing out. You've heard of FOMO, right? Fear of missing out. People don't like missing out on a deal. People don't want to regret the fact that they waited and now they have a reason to buy now because the price will go up. And this is what happens every single time. Every single time. A wave of people who have been sitting on the fence buy before the deadline. Before January 1st or whatever your deadline is, you start getting floods of customers because existing customers want to lock in their current price because they don't want to pay more later.