#36 – Set Your Price Based on Value

By dickburge5273 | Jerry's Notes

Mar 14

Many new entrepreneurs based their pricing mainly from the cost of product or service.

So if their product costs P100 to produce, they multiply it by 200% or 300% to come up with an ideal price.

But if you are selling a non-commoditized product, that’s the wrong way to do it.

Instead of focusing on cost and adding margins to it, you should ask youself: “How much is the perceived value of this product or service to my customers?

Once you figure out the estimated value of your product or service, you will suddenly realize that you can charge way much more.

My ink refilling business is a great example.

Do you remember how expensive cartridges were when back in 2005?

I bet most of you do.

One original printer cartridge costs anywhere from P800 – P1,000. It’s such a pain in the pocket.

So how much value am I giving to the customers by refilling their cartridges?

I figured they are willing to pay that time P250 – P350 per refill, and that’s what I priced my service for.

But here’s the interesting part. Do you know how much is my product cost for each ink refill?

It’s just P20!

So if I price based on cost, I would have priced each refill for P40 or maximum P60 perhaps, but never P350!

Just imagine, how much LESS I would have earned!

Good thing, I based the price of my services on the perceived value it brings to my customers!

Do you agree with this? Please share what you think below.

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