Plucking a Price out of Thin Air…


Perhaps you have a product that is so unique that you cannot begin to imagine how much you can charge for it. Perhaps it is a software product that has no direct cost attached to it… so there are no clues to be had there… it is always going to be a 100% margin product whatever the price. Perhaps it is a service for which the customer will have no obvious benchmark. Here is a little technique to help you come up with a figure. We call it Relative Value Comparison and this is how you go about it:

Firstly figure out what benefits your product can deliver that could be expressed financial terms e.g. profit made, money saved, time saved, new customers won.

Next try to lay your hands on the kind of figures the client (or a typical client in the sector) would recognise e.g. if your product helps win new customers, then find out what revenue they would expect from an average customer.

Then craft a little sentence that starts with “If our product only….”

Something like:

If our product only wins you three more customers worth £20k a year, then isn’t it worth giving it a try for £x”

or

If our product only prevents one breakdown in its twenty year life, if that breakdown results in 24 hours of downtime at a cost of £3,000 an hour that is £72,000. Isn’t it worth avoiding that for £x”

Once you have done this, you need to read the statement quickly out loud and without really thinking about it, put in a value for x that seems to make sense. If you are democratic soul have a few colleagues do the same.

This little trick is a good way to find a price that ‘sounds right’ in the context of the selling process. If it sounds right in your head, then the chances are that it will sound right if made as part of similar justification to a prospective customer.

WARNING: The technique does not work if you then plonk the price on your website without the justification.

The moral of the story is that: The means by which you justify value is at least as important as the price figure itself.

PS The technique also works when justifying a higher price than a competitor. Craft a statement that values the risk of an inferior product. “If our product only saves you having to…. Isn’t it worth just another £20 to be sure you wont need to”