Why You Should Price Based On Value

Why You Should Price Based On Value

Dustin Lien
August 31, 2014

The common fear of charging what your product is worth is that you’ll lose out on sales from customers who won’t pay a higher price, even though you know what your product is worth.

Do the math of what would happen if you sold 100 units of a $30 product or 80 units of a $40 product. By increasing $10, you can sell 20 less units and still make more money. It all depends on the level of trust you have with your potential customers. You might lose out on some customers, but you’ll still make more money. There’s obviously a point where increasing price too far will hinder sales, but you can do your own calculations for that.

This is a common problem with the way a lot of marketing and design agencies/freelancers think. They charge flat fees—let me explain why that’s a problem.

Let’s say you charge a flat fee of $500 for a logo design. The mom and pop liquor store down the street that will use it only for their sign outside gets one, and makes no money off of it. A printer company that will use it for their national re-branding campaign with projections to increase profit by $1 million after the re-brand, gets a logo from you too. Do you see how that doesn’t add up? You shouldn’t feel bad pricing higher based on the value that the company will receive from your work. If the work you are providing is making them money—hiring you or buying your product could be an investment with fantastic return (depending on your product).

Believe it or not, people will often not hire certain people or not buy certain products if the price is too low because it seems of low value. If I want to take my wife on a date, I’m not taking her to a restaurant that sells $1 burgers, I’m taking her to a restaurant with higher prices because it seems better. Both options would feed her and make her full, but I feel like I’m getting my needs fulfilled more with a more expensive restaurant choice.

Value is a funny thing. Different things hold different levels of value with different people, and it’s not all based on whether or not the customers can make money off your product or service.

Let’s say you sell digital products. An ebook would typically be no more than $10, but if the ebook teaches people how to do something that makes them money, you can comfortably charge more.

Alternatively, let’s say you’re a personal trainer. Your service doesn’t directly make your customers any extra money, but if health and fitness is something they value, they will pay you for it. People will pay high amounts if they trust you can get them the results they’re looking for, whether it’s big biceps or increased business profit. The key is building trust.

If you build an audience that is targeted and that trusts you, it makes sense that you can price based on the value they’ll get from your product rather than what a stranger would expect to pay with no understanding of your expertise or previous accomplishments.

When I was a personal trainer, by the time I stopped training after 6 years, I was charging almost $100 per hour-long session to my clients because I had built trust around the gym by helping people and showing the results of previous clients. I was comfortable with charging that rate because I had two certifications, 6 years of training experience, and I knew that I could get my clients the results they were seeking. Some people were not comfortable with that rate, or simply didn’t have the money for my price point, but I didn’t lower my rates for them because there were others who would pay me my full rate. In turn, I made more money working less hours.

Pricing based on value makes everyone happier. The customer who buys and gets the desired outcome is happy, and you are happy because you got paid an amount that you know you are worth. It’s also a safe bet that you will work harder knowing you’re being paid what you’re worth. A win-win scenario.