better business blog

Tips and stories to add value to you and your organisation

Turning £1 Into £100

23 July 2017

How much would you pay for a bottle of wine? Maybe £5 for a cheeky red, or £10 for a Prosecco treat?

Received wisdom has it that anything less than £5 isn’t really worth it because by the time you have taken into account the cost of production, bottling, shipping and tax you are actually drinking 50p worth of wine. Move up to a £7 bottle and the fixed costs remain largely the same so you might be paying a bit more tax and enjoying £1.50 worth of wine. A 3x increase in quality without needing to pay 3x the price.

The producer will also increase their margin slightly and so everyone wins.

When we price our products and services it is tempting to be ultra competitive and go for the lowest price. If we don’t value ourselves this can be an easy trap to fall into. However, if we create a strong brand and make sure we know where we add value then we can price accordingly.

My experience of coaching service businesses is that they constantly under-price themselves, fearing that small business means small price. My suggestion to them is that they raise their price slightly above the prevailing market rate. This can create an increased perception of quality and moves people away from a ‘race to the bottom’ where they compete by constantly lowering their price.

The key lesson is that if the prevailing rate for a coach, therapist, accountant, or HR professional is £50 per hour then charging £52.50 is close to the rate and yet still higher. It allows people to make a positive choice to hire the practitioner, without feeling they are paying an excessive amount for the service.

And if you’re reading this and thinking ‘why risk losing a customer for £2.50’ then here’s the rub …that £2.50 x 20 chargeable hours per week x 40 weeks = £2,000 a year extra profit for zero extra effort. You can make up your own numbers here and it doesn’t take a genius to see that even £51, instead of £50, quickly earns us an extra £100.

Now, if you don’t want the extra £100 or £2,000 then my suggestion is you still raise your price a fraction and send me the extra money. I promise to invest it wisely in Prosecco, so that you don’t have any problems spending it yourself.

Remember that a slightly higher price can help to insulate us against price-sensitive clients (because any reduction we offer starts from a higher place) and it also supports our brand values of high quality and exemplary service.

So, this week our task is to increase our prices by a humble little £1 and enjoy watching it turn into £100 for us.

Next week: The Dividend Trap