The Value/Price Relationship and How It Helps Your Business Grow

Value and price are two very fundamental but very important concepts in business and not something I think a lot of business owners think about too much.

When I ask clients about how they came up with their pricing the answer very often is along the lines of “that’s about what other people were asking” or some variation of that. And that works OK if you have about the same costs and the same outputs as the people you are comparing with for prices. You will then get about the same results as they are getting.

The problem is they may have different costs and so be able to do better with the same pricing. Or they may have decided to use that as a loss leader and that isn’t what’s supporting them.

Either way, you really need to understand your own position on this and the value of what you are offering before you can arrive at a price that makes sense. Then you need to be able to demonstrate that value to the customer so they can consider its worth to them. If they don’t understand the value, they may not consider it to be worth much even if it really is extremely valuable.

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Sometimes it helps to consider examples. So as an example – what is a scam worth? Well, if you know it’s a scam, then it should be worthless! It delivers no value to you and yet it costs whatever you paid for it to get it. Then why would anyone fall for it? Because the perceived value is high! People imagine the money that is going to flow from the business opportunity they are buying into and that clouds their judgment. They spend money they often can’t afford only to find they really got nothing. But the hope of some immense value secured for a seemingly low relative price was enough to get them to buy.

On the other hand, consider the value you may get from going to the doctor for an annual physical. It may cost a nominal amount if you have insurance, but the value it could provide could be immense.

Finding out early about a health problem or ways to improve our current health is something most people would consider priceless if you asked them when they were already sick. But when they feel fine, advice to eat healthier or exercise more may fall on deaf ears. In this case, the value is high and the price is small but it often gets ignored because the current perceived value is low.  

So how does knowing these things help you in your business? Understanding the value you can provide and the cost to provide it is the right way to then work out your pricing. If you do it wrong you could be leaving a lot of money on the table or losing out on making sales you could be getting.

How to Price by Determining Value Rather than Considering Cost

One of the problems we have with offering bookkeeping is that a lot of business owners don’t really understand the numbers in their business, or even take the time to look at them! They suffer the cost of bookkeeping because they know they need it for tax time and they suffer the cost of tax preparation because it’s too complex to tackle on their own.

Our challenge is to show clients that the bookkeeping itself can have tremendous value as a tool to improve their business, set goals, improve margins, and make key decisions. Likewise, filing a tax return is valuable but planning ahead to maximize the savings for tax is much more valuable.

My goal for us this year is to develop tools and processes to help show clients how we can aid them in growing their revenue and profits, understand their business metrics better, and plan ahead and save more on their taxes. This is where we can deliver a ton of value that is not being communicated or realized in our business.

But how to apply this generally? Start with what your business offers in terms of value and how that value is something you uniquely can offer. If you can’t think of anything or any reason someone should buy from you versus your competition, that seems like a problem!

The value you deliver should be more than just the thing itself – it should be the peace of mind, the removal of a pain point, the solving of a problem, or the extras that you offer. Again – consider what you can provide a customer that they can’t easily get from someone else. It could be your level of experience, the speed of delivery, the responsiveness of the communication, or the completeness of the offering.

As you think about this consider ways you can add even more value to what you do, especially if it’s things you can do that have a good perceived value but a low cost or no cost to you. This might be things like better service, faster responses, or free or low-cost add-ons that you can do with no added cost but seem like a great deal to the customer.

Keep in mind this needs to be value that the customer cares about and agrees with not just what you think it is. If the customer doesn’t see any value in what you are offering then it might as well not exist!

Once you have the value clear then make sure you are expressing it to the customer and make sure they understand what they stand to gain and how you are different from your competition. If they can see it and agree with it then you can price it accordingly. If they see it and don’t agree with it or they don’t see it then your price is going to seem out of line with their expectations.

Finally, look at your cost to deliver your product or service. If it’s only a fraction of the price, then congratulations, you’re going to have a great business. If it’s about the same as the price or even higher than the price then you’ve got a problem. Always work to add the most value for the lowest cost – the bigger the spread the more successful the business will be.

As I said, most business owners never think very hard about their business. They price based on what they see others charge. If you can spend some time understanding the value you can provide and then pricing accordingly so even at higher prices you seem like a much better deal than the competition you’ll never run out of customers and your business will thrive!