Strategies of pricing in marketing | BYOB 4/2

Strategies of pricing in marketing

Now before we start, I’d like to STRESS that I am NOT a financial advisor: what I’m sharing with you here is based on my experience and my research, but what you should do once you are ready to move is to check with a local financial advisor, a local accountant or any other professional entitled to give you legal financial advice.

With that out of the way, this episode comes as a follow up to the previous episode which was about strategic products and services.

And as mentioned in our previous episode, in the timeline I could have placed this episode earlier in the course but the truth is that it really depends on your specific project, and most likely this is a process that goes on throughout the timespan from decision to launch.

So I thought that placing this episode just before the actual Launch would come as a handy reminder. And if you’ve read the resources I recommend, such as the “100$ Startup” by Chris Guillebeau and the “One Page Marketing Plan” by Allan Dib, you should already have a solid plan about your products and services. 

However, in this episode, we’re going to look at my very own subjective experience regarding the topic and following up on our previous episode, we’ll build on the same examples we developed in it.

Let’s dive in!

Strategies of pricing in marketing: selling products

So let’s imagine you want to sell online courses that focus on how to do online marketing for law firms like a boss.

So how would you price that? First of all, it depends on whether you want to sell your products on existing marketplaces or on your own website, then it also depends on factors such as:

• your experience
• your fame and your audience

Strategies of pricing in marketing: selling products on marketplaces

First scenario, in case you develop WordPress themes, and want to sell on Marketplaces, you will encounter different rules depending on the platform:

• – on some marketplaces, prices are either fixed or must remain between a certain range, like on the Udemy marketplace
• on other marketplaces though, you set your own prices, but what I would do is do a market research to estimate the amount at which similar products are priced, and either align, or make your products better and more premium so that you can price it higher

So make sure you carefully read the marketplaces terms and conditions, and also make sure there is some consistency in your pricing. You don’t want to sell your course at 59$ on marketplace A and at 99$ on marketplace B.

• first of all that would make no sense
• and your customers from marketplace B will not be happy when they find out they paid an extra 40$ out of thin air

Strategies of pricing in marketing: selling products on your website

Second scenario, you want to sell from your own shop, maybe by using WordPress and Woocommerce or a third party solution.

It means you are free to set your own prices, and control the user experience, but you won’t benefit from the qualified traffic found on marketplaces.

So it means that you must have a marketing budget to get the word out there, otherwise, nobody will ever hear about your course

So, what I would do, is to assess the market prices and either align, or make your products better and more premium so that you can price it higher.

Strategies of pricing in marketing: pricing services

First of all, giving you one universal pricing is impossible because depending on where you live, and what your local expenses are, whether or not you already have an audience, figures would be completely different.

What I can give you though, is the logic and pattern that you can apply to yourself. And to achieve that, I’m going to take very simplistic examples and numbers. YOUR job will be to apply the same logic to your own situation.

So, let’s build on our example for the previous episode where you are a freelancer, selling website creation services with a focus on law firms.

Strategies of pricing in marketing: let’s make a few assumptions

• let’s say that to be comfortable, you need to make 2000$. Ok I know that for some of the viewers 2000$ is not what they’d call comfortable, but once again I’m picking easy round numbers here, so that it’s easier to understand. Now back to our example, I’m not talking about 2000$ of cashflow, I’m talking about 2000$ in your personal bank account, after you’ve paid taxes,
• let’s say that these taxes amount for 50% of any amount you make. With that logic, it means that to get 2000$ in your personal bank account, you need to make 4000$ a month to run the business
• BUT you also need to take into account all the expenses you have to make in order to run your business. For example: your cellphone subscription, bank account monthly fees, your car lease, electricity, internet subscription, your accountant and so on. And let’s say that this amounts to 500$ per month
• SO in order to run the business, and get a salary of 2000$ in your personal bank account, you have to make minimum 4500$ a month in your business bank account

But that’s not all

• let’s assume you are available for work 8 hours a day, 5 days a week, and 4 weeks per month, so a grand total of 160 hours monthly
• let’s also assume, that you get client work 50% of the time, thus filling 80 hours monthly. Now to be honest, this depends on how well you advertise yourself, the market in your location and the state of your competition. It could be as low as 30% of your time or even less, or as much as 100% of your time and even more. But once again for the sake of this video, let’s keep things simple. So out of 160 hours monthly, let’s say you work 80 hours on client work and the remaining 80 hours are spent on administrative tasks, research and development, and of course, lead generation.

Strategies of pricing in marketing: a word of caution about low prices

Now as I’ve already talked about it previously, I see a lot of newcomers trying to market themselves as cheaper than everyone else. I wouldn’t advise that, because this race to the bottom cannot allow you to make real profits unless you work 320 hours instead of 160. Once again the way I put may sound too simplistic but I just want you to grasp the concept here.

Also, the race to the bottom is a race that never ends, and that only works when you have a lot of customers along with very minimal costs.

Although there are exceptions, most of the time it means low quality or some form of quality compromise.

So while I do not judge this strategy, which can work wonders for low cost airlines for example, I don’t think that this strategy is good for very small businesses.

Because even if you would go as low as your lowest competitor in your country of residence, you could never go as low as some of your online competitors in countries where the cost of life is significantly lower.

And I’m saying this because you may be faced with competitors that are ten times lower then you, at one point.

So I don’t think this is a smart strategy for a one-man-operation type of company.

Unless you are already rich and can afford to work for free 24 / 7, then you need to at least set your rates so that your business makes a profit that allows you to run your business and pay your bills.

But if it was just about paying your bills that wouldn’t be that exciting would it?

Bear in mind that the simple math we did to calculate your initial rate is just a starting point.

Strategies of pricing in marketing: pricing based on hourly rate

So how do you calculate a rate based on these assumptions? There are many ways, but here is the one you could start with:

• although you will work 160 hours per month, in our example, only 80 hours are actually billable to your clients, so if we do a simple math, we take the amount you have to make monthly, SO in our case 4500$, divided by the number of billable hours (in our case 80 hours), SO we get an hourly rate of 56.25$ so let’s round it up to 60$ so that we make a little more profit which will go towards our cashflow.
• as you’ve probably understood by now, there are variables in this solution that can completely change the outcome. For example, what if you don’t get 80 billable hours per month. Well, then you’ll likely won’t have enough to pay yourself the 2000$ that would make you comfortable
• and what if, in your country, the taxes are higher? Or what if your fixed expenses are lower? Well, you’ve guessed it, you will need to adjust your rate based on these variables as well as on the prices in your market

So now you need to find gigs to fill in those hours.
Pricing hourly is commonly used when just starting out but there is in my opinion a much better alternative…

Strategies of pricing in marketing: pricing based per project

Another way to price your services is to charge on a per project basis. This is a bit harder to assess when just starting out, but the more experience you gain, the better you will become at that.

With our previous assumptions in mind, instead of just negotiating hours with your clients, you would quote them a final price for the whole project.

In reality, the whole project would be quoted on the number of hours you estimate the project will take.

My advice is that you write very detailed estimates so that even if you charge per project, the estimates is detailed enough so that you don’t get taken advantage of.

It should mention which tasks you will do, and the maximum amount of hours dedicated to each task. If you don’t, you may end up working countless hours with endless back and forth discussions and a lot of stress.

It’s your call, but I’m saying this out of experience.

The great thing with charging on a per project basis is that for example if you can do in 40 hours a project that was quoted with 80 hours in mind, you’ve made yourself a nice profit, and have 40 hours you can dedicate to something else.

So the better you become at quoting and assessing the resources needed to complete a project, the more profit you will make.

Now bear in mind that some months you will skyrocket through the roof and make a lot of money, while others you will barely make some. So you need to take that into consideration when defining your pricing strategy.

But if you are honest, as long as you bring value and return on investment to your customers, they will be happy.

Strategies of pricing in marketing: pricing based on return on investment

This is a tough one when just starting out, but probably the most profitable method of all. This method of pricing your services is based on the value your provide. So you could charge a percentage of the profit that would be the consequence of hiring you. So let’s say the service you provide for your client brings them an extra 200 000$ in revenue, you could easily charge 20 000$ or more.

In this method, the customers that will make your business run, are looking for professionals that can get them a great return on investment. So if you master your craft and are conversion-focused, they’ll happily pay for your services, even though your competition is many, many, many times cheaper.

Depending on your situation, and very important: your skills level, your experience, and other factors like the fact that you are an influencer for example, you may ask a lot more for doing the same work.

Just imagine that a big law firm wants to have its website redesigned from the ground up. If you are just starting your business and have limited experience, you will likely have to stay within the market price if you want a chance to get the gig.

But let’s say that even though you are starting your business, you already have a lot of experience working for an award winning agency and on top of that, let’s say that you are a big time influencer on social media when it comes to online marketing for law firms. You may get away with four times, five times or even ten times the market price and get the gig.

Do you get the idea?

And to give you an example, long time ago I’ve worked for an airline, and they outsourced the website re-design to a famous digital agency. The agency charged 250 000 euros for the redesign, and we’re not even talking about the booking engine, we’re just talking about the front-end pages.

Now bear in mind that was ten years ago, so 250 000 euros of then would be worth even more today! It was a huge website but still, some agencies pitched the airline for a lot less than that, but the top agency was selected, because the stakeholders wanted the best for their business.

When you go to the doctor or when you need a lawyer, do you look for the cheapest out there, or would you rather have the best one? Right!

So the best you become at your craft and the more visible you become, the more you can charge.

Strategies of pricing in marketing: your turn

Now, as mentioned before, I think real life examples are better than theory, this is why I came up with this specific angle, but you could apply the same principles to your own industry.

So which pricing method will you choose?

Let me know in the comments!

If you watched the companion video and if you like it, please give it a thumbs up, as it really helps growing the channel and if you know someone that could benefit from it, I’m going to ask you if you’d like to share it now.

Because let’s face it, there are so many things to do in a day that if you don’t do it now you’ll probably forget.

Now if you want to brand, market and grow your business it in the Digital Age make sure you subscribe to my email newsletter so that you never miss your share of digital alchemy and tips, tools, services and case studies that can help you grow your business online.

So, that’s it for this video, and in the next one we’ll discuss about whether or not you are ready to launch, and in the meantime, don’t forget to invest in YOUR success!