Pricing Strategies

While most restaurants sell Philly cheesesteak sandwiches for $4-5 apiece, Barclay Prime owner Stephen Starr sells his for $100. Served with a small bottle of champagne, Barclay Prime’s cheesesteak is made of sliced Kobe beef, melted Taleggio cheese, shaved truffles, caramelized onions, and shaved tomatoes on brioche bread brushed with truffle butter and homemade mustard.

Could you sell a simple sandwich for $100? I’m not sure I could, but this raises an interesting question: How do we price our goods and services? Here are some pricing strategies that should help. 

Monthly Payments. Offering a one-time payment for customers may be easy, and for some businesses, it works like a charm. But if you offer services, setting up monthly or even quarterly payment schedules can be really beneficial. It allows for a consistent point of contact between you and your clients. Personally, when I send monthly invoices, I ask for feedback, send project reports, and offer reasons why their business benefited from having me on their team. This way, my clients see that I am doing more than just asking for their money each month; I am adding something valuable to their own businesses.

Prestige Pricing: Higher prices usually mean higher quality. Luxury brands are the perfect example of this strategy. Simply improving your delivery or promise of your product can justify a higher price. Our friend in the example above who sold his sandwiches for $100 increased his perceived value by offering a bottle of champagne and homemade mustard making it the Starbucks coffee of the sandwich world!

Tiered Pricing. This is very common. Cable companies offer a “good” plan including 40 channels, a “better” plan including 60 channels, and a “best” or “premium” plan including 100 channels and free installation. Fast food restaurants offer a burger, a combo meal, and a large upgrade combo meal. Pricing tiers change a buyer’s concept of quality. They don’t normally opt for the lowest-priced option because they prefer to purchase a product that is better or even the best you have to offer.

What strategies do you use in your business’ pricing? We would love to hear what works for you.

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4 Tips When Collecting Past Due Payments

The topic of unpaid invoices is never an enjoyable one. What do you do when a client isn’t paying what he owes? Without losing your patience and professionalism, here are a few tips that work well.

1. Be friendly- You don’t want to unnecessarily burn any bridges between you and a client, so take the time to discuss current options. Even if you chose not to do business with them in the future, it is always better to take the high road, keep your cool, and try to work things out personally and rationally. You may re-send invoices and reminders, stop by a client’s office, and ask how you might be able to resolve the issue. Sometimes, you may get them to agree to a settlement; it may not be the full amount they owe, but even 60-70% is better than 0. You may also be able to work out a payment plan or an arrangement that both parties can accept. If you chose to do business with them in the future, a retainer or up-front payment can reasonably be requested.

2- Check records- Before you start demanding money, it is good to get into the habit of checking your records. Your client may have already made a payment that was not properly documented (I speak from experience). Oftentimes, clients feel that your end of a contract was not upheld so they do not feel that they should have to pay you (yes, this has happened to me too). However, I keep very accurate records of the work that I complete and I compare it with the contract or agreement we both signed, so that there is no confusion. When you can approach a client with records of work you completed, they cannot dismiss you, making it a little easier for a client to see that they should pay you what they owe- business karma can be a you-know-what.

3. Work up chain of command– If the invoice is correct and your contact person is vague about when you can expect payment, you might need to start working up the chain of command. The higher up you go and the more authority that person has in the business, the more important it might be for them to protect their company’s reputation. In fact, sometimes, a person higher in authority will immediately recognize that action needs to be taken and will bypass the “middle man” who may be dragging their heels a little bit. It might be as simple as asking the right person. Not only can you resolve the current problem, you might even be able to negotiate faster payment terms for future invoices if you chose to continue doing business with them.

4- Hire a collection agency or lawyer- This is no fun for either party, so avoid this measure for as long as you can. I have waited 6 months before doing anything about an unpaid invoice. Collection agencies are scary enough to businesses that even a threat may push them into writing a check. Plus, we all hate annoying collections calls, so people tend to avoid having to deal with them at any cost. Their services range in price, but are usually affordable, especially if an unpaid invoice is over $500. This is a much better alternative than hiring a lawyer, who can charge several hundred an hour for services. Some very large debts may require this, though I have never had to go this far.

 We would like to hear from you? Have you had to collect money from a client? What worked? What didn’t? Leave us a comment or shoot us an email at info@journeybookkeeping.com.