How to charge premium prices for your services
I am a strong proponent of premium pricing for service-based business owners. I think it is better for you as the business owner, and I know it allows you to provide the best possible service to your clients.
If you want to understand how to charge higher prices for your services, one of the most important things for you to understand is the psychology of buying.
You have to know what is going on in your potential clients’ brains when it comes to premium pricing.
Because you may think that when your clients buy from you that it’s a rational process.
The truth is, it’s not.
No matter what you are selling, buying is actually an emotional decision.
You see, it turns out our brains are rather funny when it comes to making purchases.
According to many studies, this thinking organ of ours isn’t actually very good at calculating how much something is “actually” worth. Instead, our brains take a “best-guess” approach based on the pricing of other things that it thinks are similar.
And there are hundreds of studies that show how quirky our brains can be when it comes to making purchases.
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For instance, research has shown us that:
- People think wine tastes better when it’s priced more expensively
- People buy more when you make the font size smaller or remove the comma.
- People tend to perceive prices to be smaller when they have fewer syllables.
- People assume when something has a higher price, it’s better quality.
- People tend to buy the medium-priced option when you offer them 3 choices.
So, what does all of this research about brains tell us about the way we set our prices?
Quite simply, it means that the price that someone is willing to pay for your services is NOT based on your experience, your offer, or how often you talk about them.
Instead, the amount you can charge (and get people to pay) for your services is entirely based on your prospects’ perception of value.
And while there are some psychological tricks you can use like removing the comma from a price, it’s actually the concept of value that is the key to your approach to pricing your services.
Higher prices make your services more desirable
It’s easy to think that the lower the price, the more people will buy.
However – as our quick delve into our quirky brain shows – that’s not the case.
Because our brain is such a funny organ, it turns out services or products that have a higher price also have a higher perceived value.
People tend to perceive companies with higher pricing as more prestigious and, as a result, more desirable. They also assume that a high price indicates that the product or service quality is high as well.
Here’s BusinessDictionary.com’s definition of perceived value:
A customer’s opinion of a product’s value to him or her. It may have little or nothing to do with the product’s market price, and depends on the product’s ability to satisfy his or her needs or requirements.
Hmmmm…interesting, right?
This means that – as long as you can show the high value you provide and can provide a remarkable customer experience – when you charge a higher amount, you’ll find that people have more confidence in you.
Your client will purchase a more expensive service or program from you when they perceive that you can solve a big problem and can provide big outcomes.
And, if you can show them this, pricing becomes irrelevant.
And so here are your key takeaways:
- People don’t buy {insert your service here}. Instead, they buy solutions and they buy value.
- If you can show them the value that you provide, people will choose to work with you at a premium price.
- Therefore, you should move to premium pricing because you attract fantastic premium clients, you make more money and profit, and you repel the P.I.T.A clients.
- You differentiate yourself from your competitors. Let’s talk about this one a little more…
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Higher pricing differentiates your company from your competitors
Another thing that premium pricing does for you is that it begins to move you away from the red ocean of competitors who are competing as a commodity.
There is a fantastic book called Blue Ocean Strategy by W. Chan Kim and Renee Maubourgne. And – in a nutshell – what is says is that most companies tend to operate in a red ocean (bloody waters filled with shark rivals who are competing for a shrinking profit pool). And, when you compete on price – charging by the hour – you stay in the red ocean and actually commoditize your services.
And whether you are a solo-entrepreneur or a $10-million dollar company, this is not a good place to be as a business.
In fact, it’s really bad.
It takes a tremendous amount of effort to get clients in a red ocean.
That’s why I work with all of my clients to move away from hourly rates and shift to premium-priced, differentiated packages.
Here’s why:
- Hourly rates make you a commodity.
- Hourly rates sound expensive to our quirky brains.
- Hourly rates keep you poor.
Conversely, a Blue Ocean strategy is one where you pursue strategic pricing and differentiation to carve out space in a market with little to no competition.
In my work with client businesses who provide a service like consulting, coaching, marketing, analytics, accounting, financial planning, design, programming, and so on, I have found one of the best (and quickest) ways to carve out a Blue Ocean is through the combination of premium pricing and a unique signature system.
Is fear holding you back from charging higher prices?
Now perhaps raising your rates feels scary.
You aren’t alone.
One of the biggest fears that entrepreneurs come up against is the fear of raising the prices for their services and programs.
When I talk to my clients about raising their prices, here are some of the push-back statements that I get from them:
- “If I raise my prices, I’ll lose my existing clients.”
- “I I charge more, my existing clients will get mad at me.”
- “I don’t have enough experience/knowledge in ____ to raise my prices.”
- “I won’t get new clients if I raise my prices. No one will hire me. No one will pay that much.”
- “My competition prices similar services at X. I’m worried that everyone will go to them instead.”
- “I don’t know how to package my prices to sell them at a premium.”
- “We’re not sophisticated/fancy/professional/big enough.”
- “I need a new website/sales page/business card/logo/salesperson before I can charge a premium price.
None of these things are true. Remember, your ideal clients’ brains are quirky organs and they actually gravitate toward premium pricing.
Fears hold entrepreneurs and CEOs and sales professionals and leaders back from making more money and becoming more profitable.
And the hard truth is, no matter what you charge, you will be too expensive for someone.
But the people that you “price out” are almost always the P.I.T.A clients (I think you know what I mean by the acronym).
These individuals tend to demand more time, treat you worse, ask for discounts, question bills, and question your abilities.
They are downright draining.
In contrast, when my clients raise their prices, they actually become more attractive to their ideal clients and they eliminate the P.I.T.A clients who demand a disproportionate amount of their energy and time.
The ideal clients that they begin to attract are thrilled to pay a premium price because they understand the ROI they are getting is worth their investment. These ideal clients are more motivated, inspired, respectful, and gracious.
The best thing of all? They pay on time without asking for discounts.
How to get past your fear of charging a higher price
Your own brain is getting in your way on this.
What you must do is believe in your own value. And you must believe that you can cherry-pick your clients.
And you can.
There’s an old saying, “The first sale you make is to the person in the mirror.”
How you view yourself, the expertise you think you bring, and the results you think you achieve with clients will show up in your fees.
So, here is an exercise to help you: Sit and write down at least 20 benefits that people get as a result of working with your company, both big and small. Depending on what you offer, these could cover financial, emotional, spiritual, physical, professional, mental, and/or social components.
Here are some examples to show you how this works:
- Fitness trainer: My clients lose weight, have more energy, gain self-confidence, get stronger, feel more attractive, spend more time with family, etc.
- IT consulting firm: My clients have systems that are safe from hackers, have almost no downtime, don’t get network viruses, enjoy peace of mind, etc.
- Creative agency or graphic designer: My clients appear more professional, feel better about their image, make more sales, get more leads, improve their conversion rates, attract more people to their list, etc.
Once you do this exercise and can see the incredible Return on Investment (ROI) you are getting for your clients, even your new higher rates will seem like a steal of a deal.
How to set your new premium price
Ready to take the leap to charging higher prices?
Great, here’s how.
Since people hire you because they believe you can help them achieve a specific solution, focus on the outcomes you provide.
What are the results you provide worth?
If you’ve done the exercise I mentioned about, then what you’ll find is that the value you provide to clients is worth WAY more than you charge (even if you raise your rates).
Next, let’s focus on one of your services so you can see how this works.
Write down one service that you offer right now that provides incredible value to your clients.
Next, do the same exercise as above and write down all of the outcomes this service provides for your clients. Be very careful to list everything – I often find that my clients overlook some of the incredible value that they are providing because they consider it “business as usual.”
Then, write down how can add even more value to this one service and how you can add even more results to the ones you list above.
What would you need to add to the service you listed above to help your clients get that added value and results? Are there templates, checklists, scripts, add-on services like email support, videos, roadmaps, and so on that you can bundle with your core service to create a package?
Now, ask yourself: Once I add this additional value to my service, can I double or triple the price of this package compared to my original cost?
If you’ve added enough value, this should be no problem in doing this.
Tell clients about your new offering
With this new package, you can sell it at your new, higher price to incoming clients. You can go to the past and existing clients and tell them about your new package that you are excited to offer them.
Do NOT say you have raised your rates – with all of the new value you have added to this, it can be positioned as a new offering.
Moving to premium pricing with differentiated packages will be a game-changer for your company. Your clients will get better results and your company will be more profitable.
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