It’s true that customers and potential clients often shop for products and services to purchase by price. It’s also true that coming up with and setting a price to offer in the marketplace is often tricky.
Price needs to cover the costs that it takes to produce the goods we sell and to cover our overhead and operating expenses also. If we just did this, however, we would have nothing extra to use to build our business or achieve a profit. Essentially, we wouldn’t lose any money, but we wouldn’t be making anything either.
In the case of a services primarily business – or services only – there is no product so there is to cost to produce it. Everything we charge goes to recovering overhead and adding to our profit. Depending on our financial position entering the business year – or when we begin our business, whichever is the case – we can offer our services for no charge (free), for a modest amount just to cover direct project expenses, for travel expenses only (when travel is involved), or for a fee we determine as reasonable for what we provide. The consumer will ultimately determine if our fee is reasonable by their propensity to engage us over our competitors.
The fee we charge doesn’t necessarily relate to what it costs us to deliver our services and products but rather to what we feel the value of them is to the people using them. In other words, what are people willing to pay? This isn’t an absolute number for all time either. This is why car dealers, retailers, and other businesses run sales and promotions. They are adjusting their price to see what stimulates a purchase on any given day and condition.
Ultimately, this comes down to what we call the value proposition. This means a qualitative assessment that the consumer conducts involving the price to engage us or purchase what we offer, the cost of obtaining similar goods and services from a competitor (whether an exact match or not), our general reputation (on social media, in the marketplace, and through our advertising and marketing), whether they have worked with us before, whether anyone they know has done business with us previously, and how urgently they need what we offer (versus waiting to find it for less or shopping around more).
People want to feel that they are getting good value for the money they spend or invest in a product or service. In addition to price (and we may or may not be the lowest for a particular item they are interested in having or using), they are looking at the intangibles of when they can get it, how convenient it is to obtain (if they have to travel to get the product or service from us or if we deliver or come to them), how we stand behind what we sell, others experiences with what we offer, and how happy they think they might be with working with us.
Price is important, but it rarely is the sole determining factor in whether people will purchase from us. It’s the value people ascribe to using us – and that is a personal assessment that differs by the individual.