MBA2518 How to Price Your Product or Service

0:05Hey everyone, welcome back to the$100 MBA show. I'm your host Omar Zenholm and in today's lesson lesson you will learn how to price your product or service. Pricing is one of the most crucial aspects of your business strategy. It could be the difference of you barely making ends meet in your business and really growing tremendously fast with profits month over month. This episode is an episode you really should take seriously. This topic, this concept, pricing, has caused a lot of businesses to not succeed, to fail, to go out of business, because they don't give themselves enough margin for success.

0:48Business is all about margins. You'll hear me talk about this a lot on the podcast, because the bigger your margins, the bigger chance of you being successful as an entrepreneur. Margins are basically how much it costs you to fulfill your product or service, and how much you actually charge. This is your profit. You often hear the word profit margin, and the best businesses have big margins so that they're making a lot of profit every time they do business. Now, if you get this wrong, you might be leaving money on the table, but worse, you might be leading down a path of seeing your business go down the tubes.

1:26Today, I'm gonna share with you all the experiences I've had with pricing with my products and services, what I got right, what I got wrong, what I learned along the way. But a lot of what I've learned over the last 20 years in business came from learning from others. And one person that I always go to when it comes to pricing advice is a guy named Patrick Campbell. He's a good friend of mine. He's been on the podcast before. Patrick Campbell is the founder of ProfitWell, and he built this business based on making sure people get their pricing right. He sold this business for$200 million. By the way, it's a bootstrap business, so his profit on that sale is incredible.

2:04But he sold this business for$200 million, And he, in my opinion, is one of the best when it comes to pricing. So I'll be mentioning some of the things he taught me because he consulted for us and helped fix the pricing problems we had with one of our businesses, one of our products, Webinar Ninja. So in today's lesson, I'm going to break down all the steps, things that you need to consider when it comes to getting your pricing right. And then I'm going to make sure that you know exactly what to do and how to do it. Let's get into it. Let's get down to business. Did you know that 98 % of businesses are underpricing their products?

2:37This is according to Patrick Campbell, my buddy from ProfitWell. Many businesses fail to price their products correctly, which can significantly impact their profitability. Today, we're going to make sure you're not one of the 98%. When we launched Webinar Ninja, pricing was one of our biggest challenges we faced. We didn't want to be too cheap. We didn't want to be too expensive. We didn't really know where we landed. We wanted to offer great value without underpricing our product. We learned that pricing isn't just about covering our costs and trying to please our customers. It's about understanding the market, the value position that we had, and the customer's willingness to pay.

3:15The customer's willingness to pay is something that I didn't really learn until later in my entrepreneurial career. Understanding like, hey, I might be selling this thing for way less than they're willing to pay for it. I need to figure out what their willingness to pay is, as well as how I can position myself so I'm not competing with other people in my marketplace, my competition on price. Because when you compete on price, it's a race to the bottom, to zero. And that's why we start with this first step when getting your pricing right. And that's understanding your value proposition. You need to clearly articulate your value as a business, as a product, as a service.

3:54We talked about this in our episode, our last episode, on how to create a million-dollar product. What problem are you solving? How are you making your customers' lives better? These are questions you need to be able to answer clearly right off the cuff. You need to know exactly the problem you're solving and how it's solving it in a way that makes your customers' life better. For example, with Webinar Ninja, our value proposition is making it easy and fast for businesses to create and host their webinars. Prior to Webinar Ninja, it would take two hours plus to create a webinar with landing pages and email sequences and, you know, the live stream and recording it and the replay and sending out the reminders, all that stuff, right?

4:36When Webinar Ninja hit the scene, we promised, hey, no more two hours plus to create a webinar. You can create it in seconds and you can run it within five minutes. You're set up, you just show up and that's it. Done. So that was our value proposition. Now, in your value proposition, you want to make sure you're focusing on what your customer is saving. Okay. Now, a lot of people think about money when it comes to saving, but it doesn't have to be just money. It could be time. Your product can save people a lot of time. Like in our case with Webinar Ninja, where it took too long to create a webinar.

5:07So you want to make sure that whatever your value is, you're showing them, Hey, we're saving you time. We're saving you money. We're saving you headaches. We're saving you heartache, whatever you are saving your customer, make sure it's clear in the solution. And that leads to the second step, value-based pricing. This is probably the most crucial concept you need to fully understand to do this right, to get your pricing right, is that you need to set your prices based on the value you provide rather than just your costs, okay? Rather than what the competition is doing, rather than what do I think they're going to pay.

5:44No, this approach can highly justify higher prices and increase your profitability. I'm going to give you a good example. Do you honestly believe that Louis Vuitton bags, for example, or products are better than something that's half the price, right? Probably not. But people are willing to pay for it because it's higher value, or at least we should say higher perceived value. People line up outside of Louis Vuitton just to get into the store so they can buy something. Louis Vuitton has created this value and they've increased their prices to match that value. So therefore people are happy to pay whatever they're charging.

6:26So think about the value you are offering your customers. What are they getting in exchange for your product or service? Think about how much time they're saving. How much is that time worth? How much money they're saving, right? Or better yet, how much money are they losing out on without your product? For example, with Webinar Ninja, a lot of our customers use webinars to sell their products and services, okay? And we would have case studies and show them case studies clearly. Hey, look, there's a company here that I'm going to show you that started to do live webinars to sell their products and services.

7:03And when they did this, they increased their revenue by 30%. Okay. What's 30 % of your revenue right now? In this company's case, it was close to$200 ,000. Okay. Just by running webinars and increasing sales through webinars. So you can really show people, Hey, you are missing out opportunity costs. You are missing out on this opportunity here because you're not doing X, Y, Z. All right. If you're in the knowledge industry where you're selling courses or coaching or consulting, ignorance debt is a real thing. How much is it costing people not knowing the information you have, right? For example, if you can help somebody get to a million dollars in revenue, and right now they're at$300 ,000 in revenue every year, it's costing them$700 ,000 to not know what you know, right?

7:56To not get the coaching from you. So if you phrase it like that, if you frame it like that, then they can really see that you are a valuable product and you can price based on that value. So say, for example, you have a coaching program and it costs$50 ,000 a year to join that coaching program. $50 ,000 seems like nothing compared to$700 ,000 that I'm missing out on because I don't know how to get to a million dollars compared to$300 ,000 that I'm currently making. Makes clear sense, right? Makes a lot of sense, right? So this is how you should really think about pricing. How much value are you offering your customers and then price it based on that.

8:37This is such an important point that I want to give you another example so that it really solidifies and doesn't have to deal with money, right? It doesn't have to be like, oh, your product makes people money. Let's say you're a snowboard coach, right? I use this example a lot because I love snowboarding and this example really resonates with me. Say for example, you as a snowboarding coach can give people one-on-one lessons and you can improve their ability to snowboard so they're enjoying their snowboarding trips quicker and faster. So let's say they took group coaching or group lessons and they don't get that individual attention.

9:14It might take them two or three or four seasons for them to get to a level where they can enjoy snowboarding on their own, going on green and blue runs and maybe some blacks. But with you, let's say with a few one-on-one coaching lessons, let's say three or four days, they're able to do runs on their own, blue runs, black runs, and then really enjoy themselves. If that's the value you're offering, you're going to save that person so much time. There's so much that you're going to be offering them, meaning that all those seasons where they're struggling on the slopes, they could be enjoying. Look at all the money they're saving on those trips or how much more enjoyment they're getting out of those trips, the memories they're creating, the fun they're having, right?

9:53So it doesn't have to just be about money. It could just also be about just more value. This is a no-brainer. Yes, I want to get better faster. And when you focus on the value with your pricing, you don't need to worry about competition so much. Okay, we're gonna talk about competition in a moment, but you don't need to compete on price. Highlighting your unique features and your benefits and why you're so valuable allows you to kind of just play in your own league. You don't need to worry about what others are doing so much because you're offering unique value. One of the things I learned from Patrick Campbell on a consulting call when we were trying to revamp our pricing page at Webinar Ninja is value-based pricing aligns with your price with the benefits your customers receive.

10:36So if I have a plan that is, let's say,$59 a month, the value they're getting is going to be at that level, right? So they feel like it's an even exchange. It's a good deal, right? And as I move up in the packages,$99,$200 a month, whatever it might be, they're getting more and more value, right? Allowing you to capture more value. So the more value you offer, the more you charge. Number three, your customer research. I got to be honest with you. When I first learned about customer research and how to use it to improve our pricing, I was a little bit intimidated. I was like, I'm not really sure that I know how to do this.

11:17And who do I ask? How do I ask? How do I find out about my customers when it comes to pricing, which is really sensitive, asking people like, hey, how much money do you have? Can you pay me? Right? I was not really sure about how to approach this. And again, I asked my buddy Patrick and he gave me some solid advice and I want to share it with you. So market research is very simple. You're going to conduct some surveys, some interviews, some calls with your customers. You want to understand what your customers need, what their preferences are, and what their willingness to pay is. It's just three things you're really trying to find out on a survey or in a customer interview, like a call, like a one-on-one call, whether it's on video or on the phone or whatever it might be.

12:00You just need to find out what your customer needs are, right? What their preferences are when it comes to, I'd rather have this than this. I'd rather solve this problem this way rather than that way. Both are great, but I'd rather have this, right? And then what their willingness to pay is because the preference will make a difference in how much they're willing to pay, right? So for example, if you had a service that says, hey, I'm going to show you how to do it. I'm going to give you the templates. I'm going to give you the instruction. And then you know exactly how to pull off what you're trying to pull off, whatever that service is, right?

12:31Let's say it's like video editing, right? That's good. And it's going to fulfill some needs, but that's one preference. A higher preference is like, can you just do it for me? Can you actually just do all the editing for me, right? So one package could be like, do it yourself and it's this price. And the higher preference, which is the higher value where that you do it for them is more expensive. And this is where we get into willingness to pay. You need to find out what your customers are willing to pay. A lot of people try to guess, right? Don't guess, ask your customers. An example of this question is like, what price would make you consider our product a bargain, a no brainer, for example?

13:11Okay. And you can literally ask this question in a survey, on a phone call, in a text message, whatever it might be. Okay. The point here is, is that you need to get an answer from your customer about how they feel about that price. Okay. And you don't want to give them options. You want to make it open ended. Let them say, okay. So for example, if you give them a three package options, we could do X, Y or Z. How much would you pay for each? And they will tell you, I'll pay this much for this one, this one I'm willing to pay this, and this one I'm willing to pay this. And now, obviously, you're going to get a lot of answers from a lot of customers.

13:51And you want to try to do this at least 20, 30, 40, 50 customers. The more the merrier, obviously. And then you're going to aggregate all this information and you're going to get an average. And you're going to be like, okay, on average, I'm going to be charging this much. I know how much people are willing to pay Because sometimes we don't understand pricing in the mind of the customer. Guys and gals and everybody who's listening, this is critical. Something took me a very long time to understand. Okay? Very important. Ready? You may think something's expensive while somebody else might think it's really too cheap.

14:28Why is it so cheap? When I was growing up, I didn't have much money. My parents were immigrants from Egypt. we really saved everything we had and we only spent on the essentials. Both my parents are educated and they worked hard, but they're like trying to build us a better future and they're very frugal. Okay. So growing up, I just never understood who would pay a hundred thousand dollars for a car. That's crazy, right? Who would pay$50 ,000 for a watch, right? That's nuts, right? But it's nuts to me, right? It's expensive to me because of my background, because of my upbringing, because of what I think is expensive, right?

15:07It's not universal. Other people will think $50 ,000 for a watch is nothing. I'll spend$200 ,000 for a watch. No problem, right? So don't impose your idea of what's expensive onto your customer, okay? Let them tell you because they will tell you and you need to use what matters to them because they're the people that are important, right? They're the people you're serving, not yourself, okay? A lot of us, we project what we think is expensive, not expensive based on our own backgrounds. Do not do that. There are people with money out there that are willing to spend. Number four, analyze your competition.

15:44You want to be competitive, but at the same time, not copy your competitors. The point of searching and learning and analyzing your competitors is so that you can differentiate yourself. You can learn from their pricing strategies, learn what they're doing, the theory, the how, the why they're doing it as well. And then you can position yourself in a different way in the market. Okay. One of the things that we noticed in our example with Webinar Ninja, we analyze other webinar platforms, see how they're pricing their services, their products, their upsells, their downsells, all that kind of stuff.

16:19And then we thought this is really complicated. And a lot of people feel like they're getting nickel and dimed. Maybe the starting price is cheaper. And we read a lot of reviews on review sites about customers complaining like, oh, it started out cheap. And then when I actually added everything I needed, right, it became more expensive than the other products that I looked at. So we use that to our advantage and we made it very simple for people to buy our product. We actually call it simple pricing, value-based pricing. So people like to say, you're not going to get something that you can't fully use.

16:53When you buy our product, when you buy a plan, you're going to get everything you need to be successful with webinars. We're upfront about, hey, these are the plans. The reason why we charge more is because it costs more for us to provide the service. Also, these features are only for people that are at a certain level and can't afford this price, right? We were just very upfront about it. And people really thought that was refreshing, that there was no hidden fees and there's no games being played. So we basically did the opposite of our competition, but we wouldn't have known what they were doing if we didn't do the analysis.

17:25Number five, test different pricing models. Pricing is all about testing. When you set your prices for a product or service, it's just the beginning. It's the first test, right? It's the first experiment. We've changed our prices with our products and services so many times, whether it's at the$100 MBA or Webinar Ninja or any other business I have in the past, it's really important for you to test, test, test. It's not written in stone. Do not worry. By the way, a lot of people, they get scared to change their pricing because they think, what if somebody who bought my product or service before learns that my product or my service is cheaper now?

18:06And they're going to get upset. We don't get upset at that as consumers. And if they do get upset, you can address that issue one-on-one. You can not a reason for you not to make a critical decision in your business. When you go into a store and buy a pair of pants, for example, or a shirt, or even the latest iPhone, you don't get upset if like tomorrow there's a sale and they're cheaper. Okay. You just understand that's the nature. That's the risk of buying something at any time. Okay. It's going to happen. That's okay. You have to test your pricing. Don't be held back by being afraid that you might ruffle some feathers.

18:44It's all experimentation, whether it's different pricing models, whether it's packaging, whether it's the actual price itself, whether it's you want to say, hey, the product is this standalone product and then you have some add-ons, or maybe you want to do like a kind of a pricing that has everything included and is a higher price. Test, test, test. For example, we experimented with different pricing tiers with Webinar Ninja a ton of times. We found offering a freemium model versus a free trial versus a free plan versus a premium feature kind of higher end tier. We tried all kinds of things and we found out what works best for our audience, not by just guessing, by testing, collecting the data for a period of time and then trying something different and seeing what's the difference here?

19:33What's going on here, right? Now, it's a lot of work. I'm going to tell you something that a lot of people don't talk about, but pricing and changing your pricing and iterating on your pricing, it's a lot of work. especially if you're in software, especially if you have to keep track of all these different plans that you've had in the past, legacy plans, all that kind of stuff. It was a bit of a headache, but it was well worth it because it made a big difference when it came to our revenue and profitability. Let me wrap this up in a bow and a package that you can fully understand. Let's go down the checklist of the things that will really nail your pricing.

20:05Number one, understand your value proposition. What are you offering your customers? What problems are you solving for your customers, clearly articulate that. Number two, how are you going to use value based pricing? What value are you offering your customers and how is the pricing related to that? Remember that people are happy to pay if you give them more value. Okay. Think about what the alternatives are. What are they paying for now in terms of time, effort, money? What are they missing out on? What are some things that they're not achieving because they haven't got your product or service.

20:37Okay. Number three. Okay. We're going to make sure that we understand our customers really well. We're going to do customer research. We're going to do surveys. We're going to talk to them. We're going to find out those three things, the needs, the preferences, and the willingness to pay. Okay. Number four, analyze your competition, understand where they're at in pricing, how they're packaging, what are people complaining about, how are you going to do things differently? Number five, test, test, test, different models for packaging, different upsells, downsells, you know, add-ons. How do you want to simplify?

21:06Do you want to make it a little bit more experimental or a chance for people to choose a la carte the way they want to? I learned this from Patrick when it comes to pricing models, that some things in your business people are not willing to kind of want in the packaging. Some people, they say, oh, I'm going to bundle everything and say this is the price. Well, some people don't want those things. They feel like, why am I paying for things I don't want, right? I'd rather have this other competitive product that doesn't have this and it's a little bit cheaper. So don't do that, right? Some things, and you'll learn when you talk to your customers, are only features or products or services that people of specific needs would like.

21:41And those make great add-ons. And those things, by the way, they're willing to pay for that because it's so niche, okay? So for example, with Webinar Ninja, people are willing to pay for an add-on like having an admin role. Not everybody has a big team where they need admins and different people. So the willingness to pay was high for that and that add-on made total sense. So think about how you're going to package, test different models. Thanks for tuning into the Hurt All BA Show. I hope you found this episode valuable and are now ready to set your prices right with your products and services.

22:12But before I go, I want to leave you with a thought, something to think about as you implement this. What products or services that you subscribe to or that you buy regularly or have bought in the past that you feel are great value despite the price? Something expensive, maybe a holiday you took, maybe a hotel night at a really nice hotel. Why were you happy to pay that expensive price or that more than average price? What about it that made you feel like it was worth it? Dissect how you spend and then you'll know how to charge, okay? On the flip side, what are some products or services that you have, do you feel like, oh, I'm kind of just paying for it because I have to.

22:56But if there was a competitor that came out, if somebody disrupted the market, would you jump on the opportunity to get something a little bit different that's a little bit cheaper, even more expensive, but does it better? Think about the things that you consume right now. Like for me, for example, the product that I'm happy to pay for is YouTube Premium. YouTube Premium is like$15 a month. It's a pretty expensive subscription considering other subscriptions are pretty inexpensive. I think it's more expensive than Netflix, right? But I consume YouTube a lot. I love YouTube and I don't want to spend time on ads, right?

23:31And the kicker for me was a buddy of mine, Noah Kagan, he told me, you should sign up for a YouTube premium. I said, why? What is this? I never heard of this before. This is back in the day. I think it was 2015 or something or 16. And he told me, I added up the seconds that I waste watching ads on YouTube and it like totaled like a few days of my life every year. I'm like, what? Are you kidding me? No, that's ridiculous. People that value their time are going to pay$15 a month. And I'm one of those people. So think about the products that you consume that you feel like I'm happy to spend on it.

24:03Find out why do you feel that way, right? Think about that. And then what are some things that products or services that you've consumed in the past or consider or maybe continue to consume? And you're like, I wish there was an alternative. I feel like I'm being gypped here. Not enough value. There you have it, guys. Thanks so much. I hope these insights helped. If you want more of the$100 MBA show, just head on to our website, 100mba.net. We have over 2 ,500 episodes of the podcast that you can listen to. You can subscribe on Apple Podcasts, on Spotify. You could subscribe here on YouTube if you're watching the video right now.

24:38Go ahead and do that right now so that you get our next episode automatically and you have access to our archive of 2 ,500 business lessons. Thanks so much again, and I'll check you in the next episode. I'll see you then. Take care.