Whether you’re a young startup or mature business, pricing is still one of the most difficult components of the proposal writing process. You don’t want to set your price too low and miss out on profits, but you also want to avoid overpricing your services and missing out on the contract altogether. And while hitting the sweet spot is challenging, it’s not impossible.
The Psychology of Pricing
For most business owners and CEOs, pricing is something that gets a lot of attention. You’re always thinking about cost, revenue, and margins. However, it’s imperative that you look beyond these surface-level measurements. Pricing is as much about buyer psychology as it is about spreadsheets and budgets.
“Pricing is a concept that transcends profit margins,” marketers Neil Patel and Ritka Puri explain in their guide to understanding consumer psychology. “It’s also a marketing tactic that can help your business boost sales volume. When you think about pricing, you need to focus on more than what will cover your company’s operating expenses and pay the bills. You need to choose numbers that will compel your audiences to buy.”
While Patel and Puri are specifically speaking to B2C businesses that directly target the end consumer – and how marketing and pricing work together to attract customers – the truths in the previous statement can be applied to proposal writing in B2B situations. You have to consistently produce quotes that compel audiences to say yes.
There are many different facets of pricing psychology, but if we’re going to hone in on just one, it would have to be the importance of value over cost. “Instead of showing prospects what they should expect to spend, show them what they are going [to] earn,” Patel and Puri suggest.
While the cost does matter, you have to dig deeper than dollar signs and decimal points. Why do businesses spend money on your services? Well, because they expect to receive some sort of value in return. If you can convince a prospect that the value you’re providing them is a worthy return on investment, then you can charge a higher price and produce better response rates.
5 Mistakes You Must Avoid
In order to consistently develop quotes that are enticing to targets and profitable for your business, you must avoid making debilitating mistakes that will set you back. In particular, you’ll want to avoid the following:
1. Trying to be the Lowest Price
There’s a common misconception in the business world that the lowest price equals the highest volume. While this relationship does exist in certain industries, it’s more of a cliché than a rule. This principle only holds true in industries where products and services are undifferentiated. Assuming that your business offers things that the competition doesn’t, and vice versa, then an attempt to be the lowest price on the block does you no good.
In order to provide the lowest price and benefit from it, you need access to massive amounts of resources. This is why Walmart is successful at being a low-price leader, while the convenience store on the corner of your street would go out of business if it tried to offer the lowest prices on everything.
Most businesses would prefer to have a handful of high-paying contracts than a multitude of low-paying contracts. And if you want to make this happen, you have to focus on value over price.
2. Mixing Pricing Messaging
Many businesses struggle with consistent client onboarding because they don’t have consistent pricing messaging. In other words, they’ll try to provide the lowest quote on one project, the highest quote on the next, and a middle-of-the-road figure on the one after that.
You need to identify an appropriate price point and own that number. You’ll quickly learn how people respond to your price point and can then adjust your value proposition accordingly. Clients want to see consistency – so avoid the temptation to try everything.
3. Underestimating Project Cost
It’s easy to get so caught up in market prices that you don’t take the time to carefully consider the real project costs. In other words, what’s it going to cost you to complete the project? This should be one of the first things you figure out. This gives you a bottom line figure and prevents you from undercutting yourself.
Also, don’t be conservative with these estimates. How many times does a project end up costing you the exact amount you budgeted? Very rarely. In most cases, something unpredictable pops up and increases the cost. Err on the side of caution and your pricing strategy will be much sounder.
4. Focusing on Comparative Pricing
Be very careful with comparative pricing. As soon as you position your pricing up against a competitor, the client you’re pitching takes on a totally different mindset. Typically, it’s a much more conservative mindset.
According to research published by the Stanford Graduate School of Business, asking consumers to relate your pricing to another company’s pricing can easily backfire by making them perceive a heightened risk. In other words, they suddenly become fearful that they either aren’t getting (a) the best quality or (b) the lowest price.
5. Not Using a CPQ Tool
Tools exist for a reason. They produce added value, speed up a process, or establish more consistency. When it comes to quoting and proposal writing, CPQ tools do all of these things. If you aren’t currently leveraging the value of a CPQ tool, you’re missing out on an opportunity to automate many of the time-consuming steps you’re currently dealing with.
Start Using iQuoteXpress Today
If you aren’t currently using a configure price quote (CPQ) tool, then you’re clearly not maximizing your proposal writing. In fact, it’s entirely possible that you’re compromising your proposals by using the wrong price points.
At iQuoteXpress, we produce tools that allow businesses like yours to streamline the quotation process and consistently develop accurate, professional, and comprehensive proposals in the least amount of time possible. It’s this convenience that makes our CPQ tool one of the premier solutions in the industry. Contact us today and we’ll be happy to provide you with a free no-obligation online demo.