How to Charge What It's Worth

Jul 21, 2024

Lecture Notes: How to Charge What It's Worth

Introduction

  • Speaker: Alex, Founder and CEO of Acquisition.com
  • Works with companies with a minimum of $3-10 million in revenue to help them scale and exit in 3-5 years
  • Offers free training for companies below $3 million to help them reach the point where they can work together

Importance of Charging What It's Worth

  • Essential to make money by charging appropriately
  • Common issues: being in the wrong market or using the wrong price in the right market

Understanding Price to Value Discrepancy

  • People buy when they believe the value exceeds the price
  • Continuous purchases occur as long as value > price
  • Point of cancellation occurs when value <= price
  • Businesses below this line don’t achieve repeat customers, causing financial struggles
  • Two ways to improve this discrepancy:
    1. Lowering Price: Not recommended as it leads to failure
    2. Increasing Value: Recommended approach
  • Increasing perceived value is key

Personal Anecdote on Pricing Realization

  • Comparison of a $50,000 burger and a $13 burger
  • Realized that prices can go infinitely high for value but only down to zero for lowering prices
  • Even equivalent purchases have different perceived values based on income levels

Pricing and Perceived Value

  • Goal: Sell dollars at a discount

The Vicious vs. Virtuous Cycle of Pricing

Vicious Cycle

  • Compete on price -> provide more for less -> decreasing margins
  • Results in businesses barely surviving

Virtuous Cycle

  • Increase price:
    • Higher Emotional Investment
    • Increased Perceived Value
    • Better Results
    • Less Demanding Customers
    • Increased Revenue for Fulfillment

Business Impact of Pricing

Decrease Price

  • Reduced profit
  • Lower perceived value
  • Decreased service levels
  • Lower sales team conviction

Increase Price

  • Increased profit
  • Higher perceived value
  • Enhanced service levels
  • Stronger sales team conviction

Example: Wine Taste Test

  • Same wine marketed with different prices perceived differently
  • Higher priced wine perceived as better quality

Ethical Perspective on Pricing

  • Higher emotional investment correlates with better results in DIY or collaborative services
  • Increasing the quality of prospects can improve product quality indirectly

Conclusion

  • Importance of charging what it’s worth
  • More information and resources available at Acquisition.com