What business are you really in?
Let’s look at a few ways how understanding the business you are really in impacts pricing.
(1) Product: What Are You Selling? What is the Customer Buying?
To effectively price your offering it’s crucial to understand what you offer. This may seem like common sense, but I often find that business owners don’t really know what they are selling. And they certainly don’t understand what customers are buying.
I often say that as a real estate agent, I am not in the business of “selling homes.”
Similarly, a copywriter does not sell words. A lawyer does not sell the law.
In my real estate practice, my product is a service. I coach clients through big decisions involved in major life changes, and the emotions that arise in connection with letting go, stepping into the unknown, and moving on. One aspect of my offering is a drama-free deal. If my client is a homeowner, my services include pricing and marketing the home.
My clients “buy” the confidence that they are making the right decision, and peace of mind that they will not be leaving money on the table (for sellers) or overpaying (for buyers).
(2) Positioning: How Do You Differentiate Yourself?
Positioning is a core driver of pricing.
How do you position your offering in the market? Who is your customer? Are you competing with the lowest cost alternative or the highest cost competitor?
Are you Walmart or Chanel?
Understanding what business you are really in helps you position yourself and your offering in the market.
Many people view real estate agents as a commodity: they believe agents are obsolete in a world of technology and information parity, just a person who opens the door. And, in fact, many agents believe this. They are racing to compete on speed of response time to potential client, or on how much they can reduce their fees.
Here’s a fundamental truth:
In any industry, there will alway be someone who is willing to offer the service for less money. There will always be someone who can do it faster. Competing on price or speed is a race to the bottom.
When you differentiate yourself, you avoid that competition and can justify higher prices. The path to that is to ask what business am I really in?
I want to give my clients my presence and attention without feeling rushed for time or crushed for space. This means I limit my client load to the number of clients I can handle without feeling stretched too thin. I don’t want my clients to feel that I am rushing them through their process just so I can “move on to the next one.”
That’s a different model than most real estate agents. It’s high touch, not high volume.
(3) Promise: What’s The Transformation You Offer?
What’s the promise of your offering? What’s the value that you add to the client’s process?
Are you promising your clients that you will give them access to information? Or that they will feel confident that they did not make the wrong decision?
The former has little value in an age where all information is freely available. The latter is priceless.
What would it cost the client not to work with you? How much would a mistake cost, both financially and emotionally?
Sometimes, the value I add is in advising a client not to buy or sell. This advice might save my client hundreds of thousands, if not millions, of dollars. Beyond the financial savings, what’s it worth to have peace of mind that you didn’t make a major mistake?
A New Lens on Pricing
In any industry, understanding what business you are really in offers a new lens through which to view pricing options. When you look through a wider lens, you can see similarities to other industries and find other models for pricing your offerings that you may not have previously considered.
For me, this process always sparks new ideas for how I might alter the pricing structure in my businesses.
What business are you really in? As you evaluate your business model, see how asking that question opens you to models from industries you may not have looked at before.
What can you adapt from those areas that will help you price your labor of love more effectively?
Please share your thoughts in the comments.