Value Pricing and the Psychology of Price Justin Neale
The single-most important decision in evaluating a business is pricing power. If you've got the power to raise prices without losing business to a competitor, you've got a very good business. And if you have to have a prayer session before raising the price by a tenth of a cent, then you've got a terrible business.
Warren Buffet
Most businesses chase growth, new clients, bigger contracts, but this doesn’t necessarily deliver higher profits.
Every other lever requires significant effort, investment, or risk. Pricing is the one lever where a shift in how you communicate value can deliver outsized returns immediately.
20%
19%
15%
Increase in Profits
Let’s look at what a 5% change typically delivers when applied to 5 key levers in your business.
Increased Profits %
11% 10%
7% 5%
4% 2%
0%
Overheads -5%
New Business +5%
Churn -5%
Business Levers
Costs -5%
Price +5%
The key to pricing is to remember that people will readily pay a premium if they believe you can solve their problem
How do some brands charge more than others for essentially the same thing?
2017 - Just a concept by Mike Cessario
2025 - $1.4bn valuation with $340m annual revenue
They knew their audience • There were Musicians drinking Find your target market and solve a problem that they have
water from energy drink cans at festivals (true story & where it all started)
• Non-drinkers feeling awkward at parties
• Growing health movement but also one that is increasingly image conscious
They didn’t compete on price and instead created a new category where they could sell canned water at the same price as beer Its even packaged and sold like beer
£2.50
vs
vs
£1 7. 9 9
Why clients pay more for specificity Feels custom made
Perceived expertise
The solution appears to be designed specifically for their exact problem
Specialisation indicates deeper knowledge and expertise
Reduces decision fatigue
Value over price
The solution clearly matches their need so why consider anything else?
Willingness to pay a premium for something that specifically solves their problem
Pricing will also dictate how your clients feel about your services
Dan Ariely's research at MIT tested 82 volunteers with pills described as a new pain medication. Half were told the pill cost $2.50 per dose. The other half were told it cost just 10 cents. Same pill. Zero active ingredients. The only difference was the price.
$2.50 Group
$.10 Cent Group
85% experienced pain reduction
60% experienced pain reduction
urce: Study by Dan Arierly, published in his book Predictably Irrational
The key to pricing
People will readily pay a premium if they believe you can solve their problem.
Belief drives willingness to pay
Specificity builds belief
Price signals capability
The more precisely you describe
A premium price doesn't just
Customers don't buy services.
their problem, the more they
reflect value. It actively creates
They buy confidence that their
believe you understand and can
the perception of value in the
problem will be solved.
fix it.
buyer's mind.
How you position & price your services in the market is about so much more than just profitability. It will dictate how your clients experience your services and even the overall benefit they receive from them.
To be able to charge a premium for your services, you have to sell outcomes, not a list of services
Take MSP’s for example. They usually list their services as if it’s a restaurant menu, asking the clients to choose what they want.
What does your client actually want? WHAT YOU SELL
WHAT THEY WANT
WHAT IT'S WORTH
MSP
24/7 monitoring
Systems that don't stop £4,000 per hour of downtime avoided
SEO agency
Rankings
Enquiries that become clients
Accountant
Year-end accounts Knowing which £50,000 extra margin and tax returns decisions will grow profit from a 5% price rise on £1m turnover
£200,000 per new client
Price from the value down Value to your client Your price Your cost
Aim for your client to see a 5 to 10 times return on your fee.
EXAMPLE: MANAGED IT PROVIDER
What does an hour of downtime cost? £1,800
£2,200
£64,000
an hour with 60 staff unable to work
an hour in orders not taken
from two outages last year
£30k a year to protect against £64k of losses Illustrative figures
EXAMPLE: SEO AGENCY
What is one new client worth? TRADITIONAL
RISK AND REWARD
£2,000 a month. £24,000 a year, whatever happens.
£1,000 a month, plus £20,000 per new client won.
CONSERVATIVE
1 new client
REALISTIC
STRETCH
2 new clients
3 new clients
Agency earns £32,000
Agency earns £52,000
Agency earns £72,000
Client gains £200,000
Client gains £400,000
Client gains £600,000
You take 10% of the value you create.
Put the number in your proposal 1 Describe their problem Their goals, in their words
2
3
What it's worth and what it costs
How we get there
Three scenarios, and your fee
Show two options, with the return for each Your conservative case must cover your fee
The plan, and ideally a value guarantee
Don't Stop at the First Answer THE 5 WHYS
When a customer tells you their problem, that's just the symptom. The real pain and the real buying decision sits underneath.
Thank you! and here is a free assessment you might find usefu
Do connect on LinkedIn linkedin.com/in/justinneale