Five Ways to Define Your Pricing


When starting an agency that does web business, you can expect to face several challenges. For instance, you need to learn how to make your agency known. As part of this, you need to decide on the right pricing strategy, which is a complicated issue. In trying to determine what to charge for anything based on a seemingly endless list of criteria, many business owners and marketing professionals tend to lose focus on some very important details. It seems the more obvious the details are, the easier they are to neglect.

Forget everything that you learned in Economics 101 regarding supply and demand. Today’s buyer persona is much more multidimensional, meaning that needs are not governed by details that you can put on a chart or graph. Instead, buyers look for more, as is the market. Changes happen within the market because the methods and reasons why people buy things have changed.


However, there is one thing that you have more control of than you think. Even though it is driven by basic principles like Supply and Demand, there are also more dimensions to pricing today. With all kidding set aside, this is a hot topic. It has been a source of debate for ages among some of the Internet’s top marketers, as well as more traditional business owners.

When trying to attract new customers, especially if you operate in an area where there is little competition, knowing what to charge can be difficult. If you choose a number that is too high, you could scare people away, choose one too low and people either will not take you seriously or they will unwittingly usurp all of your resources, creating hardships that could ultimately lead to closing your doors. With that in mind, I have compiled a list of five things that you should zero in on when deciding where to set the prices for your products or services.

Cover Your Costs – Always

For an agency that conducts web business, there is a definite minimum threshold for what you are able to charge. Think about all of the things that contribute to your business overhead. Here are just a few:

  • Production
  • Promotion and advertising
  • Facilities – lease/mortgage/utilities
  • Materials
  • Labor
  • Insurance

There is a cost associated with every aspect of production. The price that you set needs to be high enough to cover all of the costs incurred before presenting your offer to the customer, with a percentage of profit tagged on. While it sounds elementary, you would be amazed at how many businesses get this wrong.

In your business, some of these costs might not factor in or they will be relatively low but if you are just starting out, you can expect for your costs to be significantly higher for the first year, sometimes longer. When setting your price, think long-term.

You might be tempted to set the profit margin a little higher at the start. However, in doing so, you run the risk of setting your price too high, which would scare people away and thereby, dampen your efforts of being known. Consider adjusting your price to take a lower profit that builds naturally over time. This will allow you to set pricing that is less volatile so that your customers do not experience initial sticker shock that would make them think twice about doing business with you.

Some costs will always be high. Things like sales and marketing on their own can eat up 50 percent of a product’s price. This is an expense that, relatively speaking, decreases over time. You will always find yourself outspending more than preferred in these areas but the returns are always worth it, as long as you take the proper approach. I will have more on this for you later.

Charge Based on Value

While this may seem like a no-brainer, its highly subjective nature makes it a necessary point to consider. I will preface all of my comments in this section by telling you that you will not learn how to do this in a blog article. It takes a considerable amount of research and an understanding of who your client is.

If you have not done so already, I recommend investing in the development of a buyer persona or ideal avatar. That person is the one who drives your price, so the more you know about him or her the better. For example, if your ideal avatar owns a posh uptown hair salon, your pricing will be different than it would be if she was a struggling single mom trying to branch out on her own.

Regardless of who your ideal customer is, you have to be aware of the perceived value of your service to them. It is important to consider not only what you believe your product to be worth but also what your customers are willing to pay.

To explain this concept, let us look at two products side by side.

Product A is a smartphone app that helps automate posting to multiple channels simultaneously. It offers voice recognition for specific commands and takes dictation that allows you to speak your statuses rather than type them. Its speech-processing capabilities are the result of a year’s worth of research and development with the production overseen by some of the leading experts in the field of voice recognition technology.

Product B uses an existing smartphone signal to locate someone who gets lost in a big crowd, like at a music festival or a theme park. It is especially useful when you have young children who tend to wander off. It was designed by a bored engineering student who needed something trivial to occupy his brain.

Okay, so which of these products has the higher perceived value, the one that took a year and $500,000 (that is just a number used for example) to produce or the one that was written in a weekend by a college student sitting in a college dorm taking breaks between World of Warcraft sessions?


If you guessed Product B, you would be right. That kid is going to have huge success. The reason is that most smartphones already have capabilities of the big and expensive product, it just wrangles them into a single app. The product brings nothing new with it besides a little bit of street credit lent by the development team. It will do well because it is being presented by an established brand, but it will not fetch more per unit than the people-finder app.

The tiny, zero-budget people finder will be successful because of who it is marketed to, its ability to zero in on a problem that needs and welcomes a solution, and it has a large degree of emotional appeal. Parents with this app on their phones will feel better about having it.

Now, if your services sound more like Product A than Product B, there is no need to worry. We are not trying to disparage any one type of product or service. There are ways to increase perceived value but that is an entirely different conversation. For now, consider these few simple bits of advice:

  • Always know who your ideal customer is
  • Research your market thoroughly before setting a price
  • Invest in content creation that is congruous with what you want the perceived value of your product to be

All of these things will add to the perceived value of your product or service. As a final point, remember that where you set your prices will also affect people’s perception of your brand. Be careful to send the right messages and make the right impressions with the prices that you set.

Leverage Information About Competitors’ Pricing

If you are already dealing with some degree of competition, take note of your competitors’ prices and see how they compare to what they are offering. The prices alone may not tell you very much but the actual value of the product or service will. What are you offering that they are not? What could you stand to improve? What can you do to command a higher price for your product or service that will make people consider you first?

If your competitors cater to the same types of clients as you do, your pricing has to be perceived as competitive. Setting your price too high or too low diminishes the perceived value of your product or service, with the latter potentially putting you at risk for going out of business.

Yes, it is tempting to undercut your competitors by setting your prices lower than theirs but it is hardly a sustainable solution for your business. If you start out trying to undercut your competition, you will only drive your prices down over time.

It is also important that your price is not presented as the main thing that differentiates your product or service from the competition’s. You want to build value by demonstrating why the customer should choose you, which will drive the emotional aspects of working with you. How does it feel to do business with you? Yes, cost is a huge determining factor for many people but if you can offer a competitive price yet make your product more human than your competition’s, you have a real recipe for success.


Consider the Economic Signals Your Prices Send

As suggested earlier, setting your price too low can, and often does, decrease demand for your product. Price is an important economic signal in communicating a product’s value. More commonly than you would think, a company opens its doors and thinks it is offering such a huge deal to people that they would switch only to discover that no one takes the bait. A few months later, they do away with promotions and coupons, and set a higher everyday price for the same product or service. All of a sudden, people are buying.

Think of things like expensive clothes, personal products, or even food. Sometimes the more expensive a product is the more desirable it becomes, even if the same quality can be purchased for less. That is why name brands still sell even when there are generic alternatives likely made in and distributed by the same company.

Set Prices Your Customers Can Understand

The task of selling anything, including web services, boils down to convincing your customers that what you are offering is worth the price that you are asking for it. To do that, you need to set the price in terms that the average customer will understand.

Smart companies present pricing in a way that is easy to process. If, for example, you offer a product for $100 a year but not enough people are signing up, try offering the same product to new customers for $10 per month. More than likely, you will see an increase in sales even though the product now costs 20 percent more. Why? Simply put, there is a greater appeal to $10 for most people than there is in asking them for $100 all at once.

You can use other tactics to drive value as well. For instance, if you are offering a product or service designed to help people replace another product or service that they currently pay for, show them how what you offer will “pay for itself” over a specific amount of time.

Monitoring Your Progress

I want to close the conversation today by touching on a few important long-term measures that you can leverage to keep your price points at appropriate and profitable levels.

First, never be afraid to experiment. If your research concludes that you have some flexibility in your pricing structure, explore all of your options and set prices based on whichever set of rules would most greatly appeal to your ideal avatar. Then, make adjustments to align with his or her real-world counterpart’s buying behavior.

Remember that split testing does not apply only to things like sales pages. Experiment with different pricing structures, especially if you offer tiered services or add-ons. Use A/B testing to determine just how much your customers will demand for the price that you set.

Finally, be involved with the buyer’s journey from beginning to end. Nothing adds to the perceived value of your product or service like being visible and interacting with both current and potential customers all of the time. You can accomplish this by keeping up with your marketing, delivering quality content, and always positioning your brand as the ultimate solution to the specific problem that it solves.

How did you proceed? Or where did you get stuck? Please share your experiences either by leaving a comment or by joining our closed facebook group. Looking forward to your feedback.

  • May 22, 2017 at 9:16 am


    Merci pour cette article de fond.
    Il est vrai que la valeur du prix pour le client doit être à la hauteur de son retour d’expérience.

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