Entrepreneurs: On Pricing and Discounts

Posted from: https://www.jonloomer.com/2017/03/02/entrepreneurs-pricing-discounts/

This is a good piece of information relating to marketing and business ownership that I discovered online:

[NOTE: This post continues a series exploring the topic of entrepreneurship. While my focus has and will continue to be on Facebook ads, I have plenty to share about what I’ve learned while building my business.]

Looking back on the past 5 1/2 years, possibly the most difficult and important decisions centered around pricing.

How should you price your product? What if the price is too high? What if it’s too low? Should you offer discounts?

Most businesses err on the side I did in those early days: Underpricing.

Why? Because we lack confidence that our product deserves to be sold. We fear that we won’t sell anything at all. And we desire to have masses buy our product as affirmation.

The truth is that this approach is all wrong. The price you set will attract a certain type of audience. And if you price too low, any discounting (young businesses LOVE to discount) will devalue your product — and brand — even further.

I did it, too. I can see that now. Despite the warnings of peers and mentors, I still did it.

I am not, and never was, an expert on pricing. I didn’t model, plan, project and track psychological behavior to determine my ideal pricing structure. More often than not, I was winging it, guessing and throwing something at the wall.

But when you wing it often and long enough, you start learning some things. This post details what I’ve learned about pricing and discounts.

1. Know the Cost to Produce Your Product

My very first product in October of 2012 was a “Facebook Page Strategic Review.” Buy it and I’d review your page, complete with a video screenshare and two-page document recapping my recommendations. If I was focused and had no distractions, it would take me two hours to complete the review, start to finish.

The price: $97.

I was valuing my effort at — MAYBE — $50 per hour.

Looking back, there were two primary problems with this.

First, production didn’t scale. If I received lots of sales, my life would be chaotic — all for $50 per hour. And I risked being unable to deliver a quality product on time.

Second, to be worthwhile, the price needed to be much higher. But would a simple review of someone’s Facebook page be worth $300? $500? More? I still struggle to see how I could have provided enough value, with that particular product, to make it both worthwhile for me and the customer.

As a result, this was not a viable product. But it was not a failure. Why? Because I learned from it.

Before pricing a product, think about the costs associated with producing it. When measuring costs, think of time and resources. Think about customer service and maintenance. And please, I beg you: Do not undervalue your time.

2. Consider Scalability

There’s a reason why my products follow the webinar and community model these days: It scales.

The Page Review product had limited potential because it would never scale. It could only withstand me selling four or five per day.

At one point, I had a well-known marketer approach me about selling this product to their audience. They had reservations about the price, scalability and whether it would be worthwhile for me. I’m glad it didn’t work out.

Under my current model, maintenance costs change very little whether I have 10 people sign up for a training program or 200. The same goes for whether I have 50 or 5,000 people in my private communities.

The primary concern is making sure I first sell enough to cover costs and turn a meaningful profit (the product is worthwhile). With my current model, I can accomplish this with a small number of sales at a reasonable price.

February marked my biggest month of registrations for a single training program. My amount of effort did not change. That is the goal when creating a product that scales.

3. Consider Shelf Life

This one, too, was a critical lesson for me. It was yet another reason why I ended up with my current model.

My first truly successful product was a Power Editor training course. It did so well that I created a second edition a year and a half later.

But understand that there were major flaws with this approach. I created a training course and I sold it for $147 (of course, I discounted it at 50% off during launch).

This course was loaded with 40 or so lessons, each with a short video and written content. I over delivered in a major way.

The catch: Facebook changes really fast.

As a result, my training course quickly became outdated. So I was faced with a dilemma…

Do I update the course for current and future customers? If I do this, I keep the quality high and I keep people happy. But this suddenly increases my work hours on the product. It begins turning into a very cheap membership (get updates for a year).

Do I leave it as is? If I leave it without updating it, I risk upsetting new customers. I may even upset current customers who expect it to be updated.

Ultimately, I didn’t update it. Instead, I simply couldn’t in good conscience continue to promote it. So the shelf-life was really only about six months. And in reality, the bulk of the sales and promotion happened during the first three.

I would eventually release a second edition of this course. This time, I learned from my pricing mistake and sold it as a bundle of three parts for a total of $297. But I felt bad about the people who bought the first training course expecting updates (even though I never said there would be any), and I gave it to those first customers for free.

Plenty of lessons to go around here regarding price, shelf life, updating training courses and more. But probably the greatest lesson learned was this: If you’re going to create a static training course, make sure that the topic is evergreen.

The counter could be: “Just tell people it won’t be updated.” Yeah, sure. But that product will be worthless in six months.

My topic was the furthest you could get from evergreen. And since it wasn’t, I needed to either price accordingly or find a new model.

I found a new model: Live training via communities and webinars. The value is found in the live interaction rather than viewing something I recorded and prepared.

Side note: One reason I am experimenting with the topic of entrepreneurship is because there is a longer shelf life for the content.

4. Research the Market

I honestly had no idea how to price my training course when I launched it for the first time. But I didn’t pull my price out of thin air. I researched.

What are others charging for a similar product? Find out what they’re doing.

But of course, don’t do what I did — especially the first time. I found what others were charging and charged less. Why? Because I thought I needed to be cheaper.

We’ll get to this in a moment, but don’t price your product to appeal to bargain shoppers. Price it to appeal to value shoppers.

5. Know Your Value

You should understand the cost of creating and maintaining your product. You should research what others are charging for a similar product. And you should also know your own value.

That’s where things get difficult.

If you’re new to this, you’ll undoubtedly do what I did and undervalue yourself. Don’t do that.

Sure, visibility goes a long way to increasing your brand’s value. But I was seriously undervaluing what I had to offer in those days.

My traffic was good. While I wasn’t at the top, I had some recognition. I created a product that seriously over delivered. All of these things should have raised the value of my product.

Instead, I erred on the side of underpricing. I didn’t know — or trust — my own value.

6. You Can’t Overprice Your Product

It’s a lesson that I eventually figured out. It makes a whole lot of sense.

If you underprice your product from the start, you’re screwed. If you overprice your product, you can come down.

Raising prices because you underpriced something sucks. But if you shoot for the stars and price your product higher than you think anyone would pay, you might be surprised. People may actually buy it.

If they don’t? Just lower the price as part of a promotion.

7. Match Price With Your Target Audience

I’ve learned so many lessons over the years that originated from wise words of peers and mentors. I know this is one of them.

If you offer the cheapest price, you will attract the cheapest audience.

In other words, offering the cheapest price often attracts people who are shopping based on price — or primarily on price. And guess what? They often have the most unrealistic expectations for the dollar they spend.

I was creating a premium product and selling it to people who didn’t, in many cases, appreciate it. They always expected more, even though they bought it for a very low price.

I slowly learned that a higher price tag didn’t raise expectations regarding what would be delivered. Instead, it simply attracted an audience who wanted the best possible product.

While I’d consider my prices to still be moderate these days, the highest maintenance in terms of customer service and managing expectations was during the days I sold low-priced products. In the end, I was attracting the wrong audience.

My content and my products were for “advanced Facebook advertisers.” And yet, my price was attracting beginners.

8. If You Discount…

There are times when discounting makes sense. If you are taking pre-orders to gauge interest in a product, discounts make sense. If you are starting a community from scratch and volume matters, early discounts make sense.

But if you discount, do so off of a regular price on the high side — not from one that is already underpriced.

9. The Trappings of Discounting

If you offer a discount, your sales will go up. That volume can be intoxicating. But there are dangers beneath those numbers.

Remember that the increase is at least partially due to people who didn’t think your product was worth buying at the regular price. They are buying the discount as much as they are buying your product.

Those buying at the discount will likely be the most concerned about getting the value they expect in return. This is fine — everyone should demand value for what they buy. But the problem is that this group often comes in with unreasonable expectations.

I’ve found that customers who buy at a discounted price are more likely to want a refund. And if they sign up for a membership at a discounted rate, they are more likely to cancel within one month.

There are other trappings of discounting as well. You have to manage discount codes. What happens when someone signed up for a membership at a discount, canceled, and then wants to start back up later? They want the discount again. Do you give it to them?

The biggest trapping of all is the discount cycle. There was a time when I always needed a different promotion. How would I get sales this month? How will I beat last month’s numbers? I need to offer a special deal!

As a result, you’re constantly offering a sale on something. And after a while, it just becomes used car salesman noise. And that leads me to…

10. There is Reason to NEVER Discount

Based on what I know about discounting, it makes me skeptical about the entire process as a consumer. If a company always has a new sale, why would you ever buy something for regular price? And aren’t they just ripping you off when you do?

There is something strong and bold about never discounting. You know your value. Your price is your price. If a potential customer isn’t willing to meet your price, they are not a good fit for that product.

If you never discount, the game is gone. There’s no more psychology. No mind games. There’s something respectable about that.

Where I’m At With Pricing and Discounts

I’d say that I’m still adjusting to my early failings with pricing and discounts. If I were to start over today, my prices would likely be higher.

I’ve raised my prices slowly over the years. There was a time when I offered free 30-minute consultations. Then $97. Today, they are $497 for a single person ($100 additional for each extra person).

I do not offer discounts on one-on-ones. I realized that my time is valuable. And that price attracts the right customer who doesn’t need to learn everything in 45 minutes. They just need a single takeaway that will make the session worthwhile — saving them or making them the money they spent.

I no longer offer discounts on training programs. The price is what it is. It makes handling questions about price easy.

Part of this is by design, thanks to the model. Instead of always needing to offer a new discount or having to update content, I simply run a new, live training program nearly every month. I have a funnel that constantly feeds it from free webinars to training programs to memberships.

The one exception with discounting that I have is around memberships. While I no longer offer discounts for my established PHC – Elite membership (though some legacy members continue to benefit from old discounts), I still see reason to discount for a new community at launch.

I did it with my PHC – Basic group. As I type this, I am raising the price of that community next week. And as I think about creating a community for entrepreneurs, I’ll undoubtedly offer a discount at launch there as well.

The reason is that a community needs some level of volume. Obviously, you need a balance of quality and quantity. But I still suffer from a fear of starting a community of 1.

Overall, though, I’d say that where I’m at — whether intentionally or not — is a happy balance between premium quality products and communities combined with volume.

I could raise prices on all of these things. While I may be wrong, my expectation is that I would get fewer purchases.

Understand, there’s nothing inherently wrong with fewer purchases at a higher price. But I also see my business as a funnel building long-term relationships. I want more signups and more customers to create greater potential for more customers tomorrow and three years from tomorrow.

But like I said at the top, I’m no expert on these things. My pricing isn’t scientific or particularly well thought-out. I do still wing it. But when you wing it often and long enough, you tend to learn some things.

These are the things I’ve learned.

Your Turn

So these are my thoughts on pricing and discounts. How do you approach this?

Let me know in the comments below!

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Hope you thought that was as fascinating as I thought it was