Who sets your prices or fees? Your answer to this question is not as obvious as it sounds.
Most business owners will instantly answer that question, saying they set their prices. And in one way, they do.
However, that’s only part of the story
It doesn’t explain why most businesses in the same local area and the same industry, tend to charge roughly the same. Surely, with freedom to charge whatever they like, there should be a massively greater range of prices and fees.
Instead, I often find something like 70% of businesses charging around the same, with maybe 25% of providers at the bargain basement end of the prices scale and 5% at the top. Those numbers are anecdotal and in some industries, that 70% middle is closer to 60% or 80%. However, that same rough pattern holds true again and again.
What we know about your marketplace
- The most competitive slice of your marketplace is the overcrowded 70%. This is where it’s hardest to get noticed. These businesses tend to spend the most on advertising, networking and promotion.
- The least rewarding slice of your marketplace is the bargain basement 25%. This is where the most fee-sensitive and least valuable clients are. Those who hire you because your fees are low will ditch you, when someone offering a lower fee comes along. Wafer thin profits and high customer churn make this slice exceptionally risky. It can work [unless you sell your time for money], but requires a highly specialist approach.
- The best paid and least competitive slice of your marketplace is the top 5%. This is where the best clients, the highest fees and the biggest financial rewards are.
So, are your prices or fees attracting the right slice of your marketplace or have you drifted into the wrong place?
Although it’s by far the biggest slice of every marketplace, few if any business owners set out to be average. And NO BUSINESS OWNER will admit to building an average business. They know how hard they work and how much they care about their customers. It’s simply something that happens as their business develops.
How does it happen?
In an effort to be competitive, most business owners slowly align their prices or fees [and service level] to within a few percent of the industry average. Before they know it, they’ve joined the overcrowded masses. Working hard. Working long hours. However, earning average fees from average customers.
Moving into the top 5%
Thankfully, if you’re not happy where you are, you can reposition your business. If you want to move your business from the overcrowded middle, to the highly rewarding top 5%, you can.
It starts with a commitment to embrace the edges of your marketplace, rather than cling to the middle ground. You then need to summon the courage to increase the value you provide and then to increase your fees accordingly. It’s as much, or more, to do with your mindset as your marketing.
If you’re ready to join the top 5% of your industry, this will help you get it right: The number one thing your business needs, in order to succeed. It’s one of the most important articles I have ever written. You can read it now, for free. I hope you find it useful.