The Biggest Mistake People Make When Pricing a Product or Service

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Before people come to our classes, one of the things we hear is that one of the biggest stumbling blocks is all about how to talk about money in an effective and efficient way with clients, in a way they will enjoy. In this video, we are going talk about one tip that you can employ right away that will enhance your client's perceptions of how you are talking about money and help them hire you more often.

Here is the problem. Research from Malia Mason of Columbia University showed that people negotiated more for rounded prices than they did for specific prices. When things were specifically priced, buyers felt the price was more accurate and negotiated less.

Here is the deal. Perhaps you are in healthcare and you have to set those per employee per month rates every single year and work with consultants and brokers to get that deal done. Or if you are a professional service, every single project might be a different pricing and little different scope in value and you have got to work with a team of people inside to figure out what your pricing should be. What usually happens in those situations is you are in an internal meeting.

For the professional services example, you are working on a relatively small project. You're running the numbers and it comes out to be $52,916 is going to be the price on this project.

What would most likely happen is that they would spend about a half hour debating what they should round the number to, $50,000 or $55,000. They would have a big conversation that becomes diluted about why it should be 50 or why it should be 55. The problem with that is, not only does it take a half hour for say six people, so you can just burn a total of three hours of people’s time, but you have actually harmed your relationship with the client. When you circle back, and say hey we looked at the project, it is going to cost $50,000. To the recipient of that message, they feel like you just made it up or that they could feel like you just invented the number because it is so rounded. So ironically, you are trying to do your client a service by lowering the price a little bit, but you actually harmed their view of you by giving them the rounded number.

Here is what to do in the future. Whenever you are working with an underwriter on the per employee per month costs or whatever your world is, when you are in that internal meeting, and the pricing comes out, and it is a specific number, leave your pricing really close to that specific number. Do not round it. If you do that, when you do communicate with a client, they will perceive the effort that went into it for what it really is, which was a lot, as opposed to have the first inclination feel like you just made it up, which is bad news.

So, with that one little tip, we found that our clients can help their clients to a great degree. As with all our videos, we hope this one helps you help your clients succeed.