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Pricing & ROI Justification

Pricing & ROI Justification

  • Price is the amount that a customer is willing to pay to go from where they are NOW to where they WANT to be (so long as they believe you can take them there)
  • You always need to relate your price directly back to how much money you are making or saving the prospect - any product or service can be relayed back to this in some form
  • Survey the market for similar alternatives, you want to have a MUCH better offer than them
  • Bringing something truly unique to the market means you are delivering something 10x the value of anyone else on the market
  • When determining your pricing - if you can't list it out clearly and on a few bullet points - it's too complex. Find a way to dumb it down and still make the economics work
  • Uncertainty and lack of clarity KILL deals
  • Then from an efficiency standpoint you want to have the total LTV (lifetime value) of the customer be at least 3x the gross contribution (total amount you paid to acquire and do business with them)
  • Price alternatives should be a fun activity here, you don't need to be cheaper than others, you just need to be WAY better and know how to articulate it
  • Lastly, when determining price, you need to have clear ROI justification for the money they are paying. People like knowing apples to apples and dollars to dollars exactly what they can expect
  • Doing business shouldn't with you shouldn't COST them anything, it should be an investment back into the value they will receive
Determining Price
  • Price considerations = value of the transformation, % certainty that it can be delivered on, affordability from niche, and what competitors charge
  • Just do some back of the napkin math and pick a price to start out - price is NOT set in stone, you will come back and iterate as you get data, collect proof, and improve the offer and vehicle for transformation
  • It can take sometimes 30+ data points to really nail down a price for a niche, so just get started and don't overthink it - I'll even give you a methodology to come up with the first one
  • Price is about data, not emotions. If customers have too much resistance and won't buy, it will show
  • If it's too easy to sell, keep raising the price 10% each time until you hit a resistance level for a good bit of your leads
  • If you are just starting out, you want to get quick wins and prove your's okay to test and negotiate higher or lower based on how much you feel the customer will be able to afford
  • If you do increase or decrease the price, make sure the value is reflected and you add or remove some features to reflect it properly
  • Offering trials will allow you to understand if people are seeing the value after the trial or if they abandon and churn - it can be useful especially to SaaS companies
How To Prove The Expected Value To A Customer (1/10th model)
  1. Determine the value of the transformation you are providing. Do this by directly relating it to HOW you are helping the customer make money or save money.
    • Example: John does digital marketing for chiropractors. One new client is worth $5,000 LTV to the chiropractor. John thinks his offer and mechanism can bring in 50 new leads a month which will result in 10 new customers. That's a $50,000 value for the chiropractor.
  2. Now you need to assign the expected probability (%) of success to this actually coming true, and the customer must agree. Estimate this by your proof and credibility + the customers current situation.
    • So John and the Chiropractor need to determine and AGREE on the expected probability of success in delivering on this promise. Let's say John is pretty seasoned with Chiropractors and has some proof and data. They assign a 50% probability that this will be successful.
  3. Now the total expected value for the Chiropractor is $50,000 x 50% = $25,000 expected value
  4. Once both you and the prospective customer agree on the expected value - you apply the 10x model. This means you charge 1/10th of that expected value
  5. If John offers to provide this service for just $2,500 a month - the customer has already agreed on the ROI, they will be ecstatic to do business with you.
    • If you are a brand new company with lower economics and lower proof/data on your claims, you can start with a smaller ROI like 2-5x just to prove out the business model and stay operating. Otherwise, if you can make this 1/10th method happen - you should.
    • Competitor Pricing

    • If your competitor can create the same expected value as you then you will need to be priced lower if you want to win the business - this is why it's important to check their pricing and their overall credibility and trustworthiness
    • You can win a lot of times with a higher price if either the value created is higher OR the certainty of creating the value is higher (or all of the above are true). Both of these increase the expected value that the customer will receive
    • Also, in order to increase your price, you will either need to increase the value created or increase the level of certainty in your offer (or again, do both)

Finalized Pricing Questions

What is our price?

(any and all products and services)

Are there any payment plans?


What do other similar products or services cost?

How do we justify the ROI?

(give concrete examples & proof if possible)

  • Example: Our digital marketing company consistently produces 50 leads a month for our clients and has an incredibly strong track record. One client to your company is worth $10,000 a month. If we can convert on just 20% of these leads (industry standard), that's a $100,000 you could bring in. Given our track record and your brand and sales team I think realistically it's a 50% chance we could make that happen. $100,000 x 50% is an expected value of $50,000. Due to the monster of a machine we have built I'm willing to offer this to you for just $5,000 a month. That is a 10x ROI on your money, and if you don't see the value after month 1, we part ways.

Is there a way to offer a guarantee or risk removal?