Why the first number in your price is the most essential
This is a principle I refer to as left digit management. And it’s one that I believe can be even more powerful than the power of 9 – a commonly used price psychology method.
In the power of 9 you should always consider using a price that ends in a 9 because it will encourage more conversions. So instead of using £390 or $390 as a price for example you use £389 or $389.
It may only be a pound or dollar difference but the impact of the power of 9 means that more people will buy.
The power of the first digit
Apply a similar principle to the first digit however, and the impact is even more powerful. Say in this instance the price is £400 (or $400). Test it at £399 (or $399) and again – although it’s only a pound or a dollar difference the perception is an even greater difference than the previous example and therefore more clients are likely to convert.
The power of a price ending in 9
When you go shopping do you ever really take notice of the prices?
Next time have a quick scan of the receipt. How many of the prices of the things that you bought end in 9? Chances are, a vast majority.
Because 9 is a hugely powerful number when it comes to pricing and price psychology. There have been numerous studies into its power but one of my favourites involves three experiments carried out by Anderson and Simester in their research paper “The Effects of $9 Price Endings on Retail Sales”.
One of those experiments saw them testing an item in a catalogue at three different price points to see how the price affected conversions.
The results will surprise you.
How a mid-price option proved the most popular
At $34 they sold 16 units
At $39 they sold 21 units
At $44 they told 17 units
The cheapest did not sell the most. The most expensive did not sell the least. In fact the price point that converted best...
Why everything seems expensive without contrast
I often get asked what the most powerful technique is when it comes to pricing.
And I reply – “The contrast principle.”
I believe that it’s described most effectively in the introduction to a book called Influence, Science and Practice by Dr Robert Cialdini. The book – which I consider to be the best book on selling that I’ve ever read – talks about the primary laws of influence. Dr Cialdini calls the concept ‘perceptual contrast’ and describes it like this:
“When we see two things in sequence that are different from one another, we'll tend to see the second one as more different from the first than it actually is.”
It’s a theory that carries into pricing. Human beings are clueless about price.
Honestly. We don’t know the price of anything because we don’t know the absolutes.
Therefore we compare.
And our clients compare too. Without you...
How your clients know nothing about price
Did you know your clients are absolutely clueless about price?
Yes – clueless.
And it’s proven. In fact, it’s proven by psychophysics, a branch of science that has been around for more than a hundred years.
So what does it mean?
Essentially psychophysics means that we are more sensitive to differences than we are to absolutes.
Take sensory judgments such as weight, smell, taste and sight for example. If I showed you two shades of red you would be able to see the difference – i.e. tell me which shade was darker – but it’s unlikely you would have no idea on the absolute shade of red.
The same with your sense of touch. If I asked you to put your hands in two buckets of water – one hot, one cold – you would struggle to tell me the exact temperature of the water. But you would be able to tell me which one was hotter and which was cooler.
We are great at understanding the differences...
Why fixed pricing is always wrong
Or to be more precise… when you have a single fixed price
It’s always wrong.
Essentially it goes back to the basics of economics. I have always been fascinated by economics – so much so that I took a degree in it. One of the most important things I learnt was the theory of the equilibrium price.
Or in other words the fact that price should be set where the supply and demand curve intersects.
When you look at a visual representation of that it shows an area above the equilibrium price and below the demand curve that is the consumer surplus.
That is also the amount of profit available if we can tap into the fact that different customers will pay different prices.
You can watch the video here.
The concept of magic price
In a previous video I looked at the concept of magic price and how you figure out your magic price. I looked at the situation of you selling a tax return that costs you £50 in...
Taking the law of supply and demand to the next level
So what is a magic price
Essentially, it's the price that maximises your profit.
The law of supply and demand
When I started to study economics, even at school one of the very first things we learned was the law of supply and demand. That the point at which the supply curve and the demand curve intersect is the equilibrium – or ideal – price. The trouble is that while that works in theory, in practice it's difficult to measure.
If we could, if we knew, for example, exactly how many tax returns people would buy at £200 or £300, we could easily plot a demand curve. And then, if we worked out the profit for each price point, we’d end up with a bell-shaped chart. One that basically shows that a zero price – giving your stuff away for free, while still having to cover all of your costs – means you’d be making a loss.
Similarly, at the other end of the scale, if you price too high...
Debunking the myth of price sensitivity
One of the big myths I hear over and over again – and one of the main things holding us back with our pricing – is that our clients are price sensitive. But, as the Amazon number-one best-selling author of “Effective Pricing for Accountants”, I can tell you that they’re absolutely not.
Let me explain.
Most accountants and bookkeepers I speak to think their clients are price sensitive. But research by behavioural economists suggests that the number of price-sensitive people in society is about one in five, or 20%. And a typical example might be someone who’s retired, who collects the free newspapers and goes through them every weekend meticulously cutting out the 3p-off food vouchers.
So I admit all they care about is price. They’ve got time on their hands. But what I also know is that they’re not your clients. And, if they are, then you may want to revisit your ideal client process!
3 tips for pricing one-off jobs
When deciding how to price projects such as annual accounts it’s relatively easy. It’s repetitive, predictable and we are able to create a package solution to suit that makes it easy to price.
But what about when it’s a one-off job? How best do you price it then?
Here are 3 tips to help you do it more effectively:
Tip 1 – Establish the value to the customer
The one-off job, or special job, is just that – it’s unusual and so pricing for it is unusual too.
The first step therefore is in quantifying its value to the customer. What is it that they want you to do and – more importantly - why do they want you to do it?
Getting the answer to the second question will help you in determining the benefit to them of what they are asking you to do – and therefore the value to them. It may be subjective but that’s fine.
You need to create a picture of what’s at stake. That will help you work out...
Why believing in a market price could mean you’re missing out
As the Amazon number-one best-selling author of “Effective Pricing for Accountants”, I want to share with you why there's no such thing as a market price.
Often, if I tell an accountant they’re charging too little for something, that they should increase the price of doing a tax return, for example, they’ll say, "But Mark, you don't understand my client base. I’m charging the market price – I can’t charge any more."
But I’m going to tell you exactly what I tell them: that they’re wrong. That’s there's no such thing as a market price. And I can prove it.
Staggering results from benchmarking survey
In 2014 I was privileged to carry out the single biggest benchmarking survey of the UK accounting profession. In it, I asked 725 accounting firms a whole bunch of questions about how they price as a profession. In particular, I looked at 25 different accounting, tax...
Increase your sales leads – automatically
List building – building up your database of prospective clients, of those people you'd like to work with – is one of the fundamentals of marketing. Yet when I ask most accounting firms and bookkeepers how big their list is, typically it’s less than a hundred.
A list of less than a hundred severely limits your potential growth. Even sole practitioners should be aiming for a couple of thousand. But how do you go about reaching this?
You can watch the video here. And here are the steps you want to take.
Stage 1: Establish a system
The answer is you put a system in place that will nurture and grow your list. It’s what I see as one of the main strategies of social media, including the big three: LinkedIn, Twitter, and Facebook.
In addition you should have – actually, not should but must have – either a YouTube channel (video’s the most powerful form of marketing there is), or a blog. Or best...