Perhaps the biggest insider tip I can give about price is that it’s got more to do with psychology than math. When I tell people that, they often think I’m a little nutso, until we start to get into it and then they recognize how true it is.

So, if you’re trying to figure out how to work the numbers and land on the perfect pricing formula, the good and bad news is, you’re wasting your time. There is no perfect pricing formula!

The math you absolutely need comes down to these few things:

1. Cost per unit or sale​
   ​How much it costs you to create and deliver what you offer per thing or purchase. This is also called your unit cost.
2. Average (or target) sales quantity​
   ​How much you do or plan to sell of each thing you offer.
   Be conservative. There’s no harm in underestimating your sales, but overestimating can land you in trouble and mean you run out of money.
3. Operating/Overhead costs
   ​How much it costs you to do business beyond the unit costs or Cost of Goods Sold (COGS), with an understanding of fixed vs variable costs.
   ​
   (Check out The Cost of Doing Business for more on this).

The biggest advice I can give you about the math is not to leave out all the costs that may not make it into your business bookkeeping. Most specifically, depending on your legal structure, your salary and taxes on your profits.

Utilizing this information, you can figure out your:

• Bottom-line Pricing, which is the minimum you need to charge to pay your unit costs and your overhead and have some money left over to cover any unexpected expenses.
  ​Note, there’s no real profit baked into your bottom-line pricing. The point is to define the price below which you cannot go without losing money.
• Breakeven, which helps you define how much of what you offer you need to sell in order not to lose any money at the price you’re charging.
  ​There are lots of breakeven calculators online (see below, as I’ve included a couple).

Ok, that’s pretty much the math stuff. So, what about the psychology?

Apologies in advance for all the links included, but I’ve covered a bunch of these things in the past and to a greater extent than I can possibly do justice in one email.
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These are kind of like my greatest hits of pricing advice:

• Your mindset is key. I’ve written about limiting beliefs and how they impact pricing in insidious ways. (Are You Limited) One of the biggest gifts you can give yourself is a value-focused mindset based on actual audience research and not just your own assumptions of your worth or that of your products and/or services.
  ​
• Establishing value begins at ‘hello.’ What I mean by this is that everything counts from the minute someone becomes aware of your business or offer all the way through the sales process and beyond. It all works together to convey expectations around value and price.
  A great way to assess how well your branding, messaging, and sales are aligned in conveying and communicating your value is through Know. Like. Trust.
• Focus on the transformation and impact rather than features & benefits. People are willing to pay more for transformation than for solutions, so sell them that deep impact. If you need help defining that transformation, check out What You Say… and Shall I Compare Thee…​
• Understand the power and peril of ‘free’. Not sure I can say it any better than I did in FREE is a Four-Letter Word. Free can be an awesome sales tool. It can also devalue your offers in the eyes and hearts of your audience. So, deploy it wisely.
• Pricing is a construct. What do I mean by this? While, yes, you need to charge enough to recoup your costs and then some, everything above that is really based on your own and your customers’ beliefs about value. The trick is to align those two definitions of value so that your customers see your pricing as not just worth it, but worth more than what they're paying.

The last thing I’ll say about pricing as it relates to your business model (for now) is that it needs to make sense when you consider your target audience.

If you’re charging more than your audience can afford, you either need to change your price or change your audience. (Check out last week’s message, Is the Price Right?, for more on that.)

I sincerely hope you’ve found this business model series of help to you and that you now feel confident to implement changes to your business strategy to meet the year ahead and beyond.

As always, if you have like to talk over any aspect of your pricing or business model, book a session with me.
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Until next week, don’t be afraid to experiment with your pricing—you may surprise yourself and your customers.
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P.S. — Two breakdown calculators to check out: SBA Breakeven Calculator, BPlans.com Breakdown Calculator.

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