How much is your product worth? How much should you charge for your services? How is the value of a product or service determined? Often this is a very difficult assessment. The old waiting answers of “its value is what someone is willing to pay for it”, or for a product, “what it costs to make it” are not very satisfactory. Do any of those answers actually tell us how to determine the value? Do those answers tell us what price to put on a product or service?
When it comes time to determine the value of a product or service, you should ask yourself 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 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. How much does it cost to produce? While this is not the value, it is a consideration when determining the value of a product. For a service, you can 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 differentiates your product or service from the rest? What is the advantage of your product or service compared to the competition?
3. How quickly do your buyers need what you are selling? At first, experts didn’t think FedEx was a good idea. Who would pay extra to have things overnight? Now, speed is an increasing component of the value of a product or service. I know at our law firm speed is sometimes extremely important to clients and they will pay more 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 fashion item or an item that people will be passionate about? Is it a premium product or service that people would be willing to pay more for? What is the perceived value of the product or service? Sometimes raising the price of something creates value because people expect it to be worth more because of the higher price.
6. Is this a one time agreement or something that will continue in the future? Are you trying to establish a relationship with the consumer to continue with the products or services? Are you selling a printer for less because you will make money selling ink in the future?
These are just a few considerations when determining the value of a product or service. Don’t be afraid to price it higher if that’s the value you’ve determined it’s worth. As I said in number five, the higher price can actually help sales because consumers believe it has more value because of the higher price.
Even after considering all of the above, as well as other variables pertaining to what you’re selling, there’s still some guesswork involved in setting the “right” price. Hindsight may show that your price was too high or too low. Too high and you can always lower the price to get rid of inventory. Too low and you may 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’ll have a better understanding of how to price whatever it is you’re selling.