Many people who sell online don’t know how to price their product or packages. I guess that you know how much you want to make from sales, but do you really know the best price for your service or product offering?
Lots of people play the psychological game of selling products for prices like $97, $99 or $299. When you ask them why they choose these prices, they all answer something along the lines of “Well, $99 just feels like much less money than $100, so it must convert much better.”
I’m pretty certain that this idea comes from the offline retail world. Think about it: when you go to the store, you always see prices like $1.99 or $2.98. We assume that this is probably the best approach for us online, too, and implement similar pricing strategies without even testing them.
In today’s post, I will try to explain to you why I believe this is the wrong approach and what you should do instead.
The pricing game doesn’t fool people
First, while these pricing models might be relevant to in-store retail, they may be entirely irrelevant for online or direct sales. I’ve never found a single study that proves that $99 or $98 converts better than $100. When you set your price at $299 instead of $300, you think that it will help your client to feel like they are paying less. The number may look smaller, and you may think that will fool them. When I look at something priced at $299, I clearly see $300. I think everyone else does too.
When you are setting your prices, round them up to the nearest 10, 100, and so on. So $299 becomes $300, and $999 becomes $1000. I bet you won’t see any appreciable difference in conversion. Even if there is 0.1% difference, you won’t feel any real impact on revenue unless you sell millions of items like a large retail store does.
Do what’s counterintuitive: Increase your price
Instead, you should focus on increasing the price. As I said, most of you probably never tested your pricing structure. You set the price and go with it. My advice: always check your pricing structure and find the price that works best.
Perhaps an example will help illustrate my point better:
Let’s assume you have a website for your portrait photography business, with most of your traffic coming from social media, a conversion rate from clicks to sales of 10%, and a sales price of $500. So from 100 clicks you get 10 sales, which equates to $5,000 in revenue. Let’s say all these sales come in one week, and 10 clients is about the maximum you can serve in any given week.
Consider increasing your price to $800. Admittedly, your conversion rate may fall, so hypothetically, let’s assume it drops to 8%. Now you only have eight sales. But do the math: your revenue is $6,400! You spent less time and effort serving eight clients instead of ten, and you made more money! Woohoo!
But don’t stop there.
Next, test the impact of selling your product for $1,000. Perhaps your conversion drops to 6%. Now you have to serve six clients and will make $6,000. It’s a little less revenue, but we know that you can serve up to ten customers a week, right? Now you have a bit more money, too, which gives you a little budget for marketing. Use that budget to play with some paid campaigns to bring more traffic to your site. Be careful with spending large amounts on marketing, though; always start with small budgets for paid campaigns, and use laser targeting.
Test until you find the optimal combination
Run tests like these until you find the sweet spot between the price, time spent and money you earn. By following these steps, you should be able to find the price that is perfect for the time you have to serve clients, the money you want to make, and what your customers are willing to pay.