What is your product worth? How much should you charge for your services? How do you determine value of a product or service? Often this is a very difficult assessment. The old standby answers of, “its value is what someone is willing to pay for it,” or for a product, “what it costs to make” are not very satisfactory. Do either of those answers really tell us how to determine value? Do those answers tell us what price to put on a product or service?
When it is time for you to determine the value of a product or service, you need to ask some questions about what you are selling. I reviewed some of the questions Mark H. McCormack asked regarding value in “What They Don’t Teach You At Harvard Business School: Notes From A Street-Smart Executive” and modified them a bit from my own experiences to come up with this short list of things to consider when determining value:
1. What does it cost to produce? While this is not the value, it is a consideration when you are determining the value of a product. For a service, you may look at the time and what it costs in time to perform the service.
2. How unique is it? Is this a product or service that people can buy from competitors? Are the competitors cheaper than you? What sets your product or service out from the rest? What is the advantage of your product or service compared with the competition?
3. How quickly do your buyers need what you are selling? At first, the experts didn’t think FedEx was a good idea. Who would pay extra to have things overnight? Now, speed is an ever increasing component to a product or service’s value. I know in our law office, speed is sometimes extremely important to clients and they will pay extra for it.
4. What is the replacement cost? Something that is easily replaced may not be worth something that is hard to come by.
5. Is this a fad item or an item that people will be highly passionate about? Is it a premium product or service people would be willing to pay more for? What is the perception of value of the product or service? Sometimes raising the price of something creates value because people expect it to be worth more due to the higher price tag.
6. Is this a one-time deal or something that will continue on into the future? Are you trying to establish a relationship with the consumer to continue with products or services? Do you sell a printer for less because you will make money selling ink into the future?
These are only a few considerations when determining the value of a product or service. Don’t be afraid to price something higher if that is the value you have determined it is worth. As I stated under number five, the higher price may in fact help sales due to consumers believing it has more value because of the higher price tag.
Even after you consider all of the above as well as other variables that pertain to what you are selling, there is still a bit of guess work involved in setting the “right” price. Hindsight can prove your price was too high or too low. Too high and you can always reduce the price to get rid of inventory. Too low and you can raise the price for future consumers, or at least know better next time.
Determining value is not an exact science. However, if you consider some of the questions presented in this article you will have a better grasp of how to price whatever it is you are selling.
