Pricing

0:03 Welcome to business purpose and clarity with petri I'm your host we talk about startup life insights practical tips mistakes failures and everything between well that's the billion dollar question isn't it let's start by not what to do you can check my other podcast called toxic battery and episode consumer is sovereign where we talk about that but I give you just a very brief summary so the regular way pricing is usually thought in business calls and maybe in some accelerators in different places or you just intuitively pick it up is that you take your costs and then you add a bit of marching and that's your price but no you should never do it like that that's not the way to do pricing I hear a lot of excuses why people are doing it this way well it's.

1:08 Convenient I don't know the pricing level we are doing a new thing it's really hard customers are not willing to buy you know with a higher price we are a new player nobody knows us so we have to give a bit of discount uh we put it the price low now that later on we will put it in a proper I could keep on going most of those things are not actually true or they have some part of truth but it's it's not the reason you should actually follow that advice nevertheless you are not never buying anything as a because somebody has some kind of costs and then they need a little bit extra to and and keep on going you are always buying something because you the product more than the amount of money you're willing to to in exchange that's just simple 101 economics.

2:11 It doesn't matter how much time and effort and costs the seller has been putting on the that's not a or reason for the buyer to buy they buy it because they need it they buy it because they want it and they get more value out of it than the money they are willing to apart if you're starting with really low prices you may have a difficulties and later on to hike the price because that's usually when you start with something people are setting their expectations on that level maybe you are like tenfold cheaper than existing competitor then you say well now we actually are only five times cheaper not ten times and they're like what you hiking the price so much that no no we are not willing to pay for that.

3:16 Going about pricing from the beginning in the right way is really important so what is the proper way of pricing how do you do that I would also hit you with another toxic battery episode and I actually will it's paul vios episode where he is the professor of value-based sales he talks all about it you should check his content as well the idea already from the term value-based selling tells most of it you should consider how much value the user is getting out of the product it's irrelevant how much does it cost to produce the item and if you start to put your sales process your expectations your branding your image and you focus on telling to the customer that hey with our product you can make this amount of money and you can save this amount of costs.

4:22 And you can make your life this amount of easier because you don't need to do x y z these are all the benefits you will get with our product it's a different approach than saying that well it costs 10 euros per pair just stating that it's 10 euros a month per user the buyer is like thinking okay this is adding this is a cost item but if you present it like that hey would you like to get this hundred thousand because with our product you don't need to do this and that and we only take or 50 of the savings from the first year and then we will reduce it that sets a different price point that sets a different type of conversation.

5:26 But it also may require that you may need to sell it to somebody who actually and understand that type of it might be the ceo it might be the business leader somebody who is looking for making more money saving a bit of costs and understands the big picture improvement of the company because sometimes it's the processes the efficiency doing things in a different way and if you selling to some unit manager or someone in a lower level of the hierarchy and you're saying to them that hey you don't actually need three people in your team because our software will do it for you there might be some politics involved as now you're actually saying that maybe the person who is buying the product is not needed anymore because there's no.

6:28 Need for the team anymore because the product just kind of does the job so he may be thinking that that's not a good thing because I love my salary I love my work and this product is putting me out of or there's some other reasons so keep that in mind when you're selling something it's not just about the price but everything is about the price so you have to really carefully consider from the beginning what's the value what you're providing how do you want to be perceived in the what's your approach to the sales how much does it actually cost to sell the item is personal sales even an option because if you need so many customers so many closed deals to make the company it doesn't make any sense to do 101 sales you need to do marketing or.

7:32 Something else is a complex thing it's not a difficult thing but it's really in the essence of your company it's part of the business model the reason why you exist and your competitive advantage destroying in these fancy words so everything is connected but it pretty much is all in the price.