The world revolves around perceived value.
One of my previous business partners was a major player in the auto industry for a long time, her family owned a network of car dealerships (she runs a blog here). Hilary taught me about the concept of “perceived value” and how people are willing to pay much more for something they perceive as being more valuable, even though there is no more physical value (materials). Sure an Aston Martin is hand built, but does it cost close to the $250,000 price tag in materials to build? Probably not.
This goes for most, if not all high end cars. It has been reported that Porsche makes $26,000 per car sold – all perceived value. Why can Apple charge $500 more for a computer than their competitors? Exactly.
The same goes for the online world. There are social media consultants out there who charge $200 a day, but I know of one who charges $22,000 a day. How does he get away with it? He must do a few seriously impressive magic tricks right? Chris Brogan can charge whatever he wants because people will pay it. He’s become a master at building value for his services through his blog and speaking engagements.
If you are doing consulting of any kind need become a master of perceived value, you’re only worth as much as YOU decide.
When I was in high school I did a lot of web design for people. At the time, I was just happy to make $20 an hour which was much more than my friends were making working at the mall. However what I didn’t know at the time was my clients were getting the better end of the deal. I soon realized that other web designers were charging two or three times more for the same work. The problem was that I couldn’t suddenly raise my rates because I received most of my work via word of mouth, and people knew how much I charged before contacting me.
This is why understanding percieved value before you start your business is so important. You don’t want to get locked into an hourly rate and miss out on a ton of money.
People who launch digital products also need to understand this concept. Did you ever wonder why ebooks have those obnoxiously long sales pages? It’s all about building value. This is why most of these products offer 3 or 4 “free” bonuses with your purchase. With physical products you have materials that create value, however with digital products it’s ALL perceived value.
Before you create a new service, or digital product ask yourself – do you want to be an Aston Martin or Honda Civic today?
As a result of reading this article, I am going to figure out some talks I can give at local libraries and vo-techs and entrepreneurial type group meetings and start blogging a bit more. Thanks for the inspiration!
Here are some thoughts: Doesn’t it pay to be the “Sam Walton” of a niche sometimes? I mean… you can have 100 clients at 500.00 each or you can have 1000 at 100.00 each right? In this case, it is all about scalability and delegation and thereby letting others (like sales reps) in on the action. Also, isn’t the demographic an important consideration? In certain niches, one can charge high $, whereas in others (such as ours) that would be like suicide, right? What do you think?
I would prefer 100 customers @ $500 each. These customers can connect you to clients that will pay $500 or more. The $100 clients are more likely to ask for a deal and you will work twice as hard.
I am restructuring my pricing for my business as well. I spend Dec – February updating and re-organizing, so during these months, I do more specials on my services.
Ciao,
Amore
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This is a great blog
Exactly! It’s an interesting thing – people who pay less tend to complain more, some of my highest paying clients in the past were the easiest to please.