Pricing is usually one of the first things I talk to clients about.
Asking clients the question, “Could you raise prices right now if you wanted to?” is a good barometer of their business’s health and one of the best tests of whether a business owner has carved out a differentiated niche market. If your business delivers exceptional value that is exclusive to your well-defined market, then the answer to the question above should be a resounding yes.
For the last few weeks, we’ve been focusing on the importance of niches and competitive advantage. This is really about working smarter, not harder. When you carve out a niche, you are honing your very special skill set with each sale or project, getting better at what you are already good at. You are not scrabbling for business in a vast field of competitors—in other words, you are not a commodity, and you have much more control over pricing.
However, a niche can be too small, and part of this task is finding that sweet spot between wide and narrow. There are three factors to consider in developing the optimum niche:
- Does your business offer your customers exceptional (and ideally quantifiable) value to a narrowly defined or niche market? Are you offering something they can’t get anywhere else? If so, your prospect should realize after just a brief conversation that you “get” them in a deep way. Can you offer a potential client the names of three or four satisfied customers from their own industry?
- Is your market large enough so that clients lost due to price increases can be quickly replaced with new customers? This is where being too specialized can be a problem. And for some businesses—like business coaching, for instance, where my success depends on getting my clients to a place where they don’t need me anymore—losing clients is a natural part of the cycle. Be sure that your target market is large enough that lost clients can be easily replaced.
- Does your business have a marketing/sales process that is consistently effective? The importance of a predictably effective marketing and sales process can’t be overstated. Because businesses always, always, ALWAYS need more sales. Why? Not just to grow and prosper, but to mitigate the fact that they are always, always, ALWAYS losing customers!
Obviously, businesses try to lose as few customers as possible by providing exceptional value that increases and adapts as their clients’ businesses mature, improve, and have more sophisticated needs. Businesses try to provide this value with the best possible service, and they try to price right on the edge of where it balances perfectly with perceived value. In any case, most (if not all) clients will leave eventually—hopefully because you’ve done such a wonderful job they don’t need you anymore.
If you’re considering a price increase but aren’t sure you can say yes to the three questions above, (or if the mere thought of raising prices makes you sweat bullets!) send me an email at email@example.com and we can set up a time to talk.