As the waitress dropped the check off at the table, we both reached for our wallets. For a brief moment I felt as if we were in the Wild West, about to have a show-down.<\/p>\n
Who was going to pay?<\/p>\n
Any time I go to lunch with a mentor I try to cover their meal. Occasionally, we get into a battle over who\u2019s going to pay, and this was one of those days. I had learned so much that day over a plate of Chinese that buying his lunch was the least I could do.<\/p>\n
But he wasn\u2019t going to have it. So I wouldn\u2019t offend him, I finally caved in and let him buy. He pilfered through the wad of cash in his wallet looking for the appropriate bills to leave with the check.<\/p>\n
I wasn\u2019t trying to notice, but man, there was a lot of money in there!<\/p>\n
I\u2019m not sure if he noticed that I noticed how much cash he had in his wallet, or if he had intended to share this next lesson with me all along\u2026but what happened next greatly sculpted my view of money.<\/p>\n
In addition to pulling out the necessary money to cover our lunch, he pulled out a $100 dollar bill and a $5 dollar bill. As he slid them both across the table to me, he asked, \u201cWhat\u2019s the difference between these?\u201d<\/em><\/p>\n Caught a little off guard by his question, my response was, \u201cUmm, one\u2019s a five and one\u2019s a hundred?\u201d<\/em><\/p>\n \u201cThat\u2019s right, but what else?\u201d<\/em> he prodded<\/p>\n \u201cWell, this one is worth 100 dollars, and this one is worth 5 dollars,\u201d<\/em> I muttered while trying to sound intelligent.<\/p>\n \u201cLook closely,\u201d<\/em> he said. \u201cNotice they\u2019re both printed on the same type of paper, both printed with the same type of ink, both have printing on two sides, and both have some security strip woven into the paper to help prevent counterfeiting.\u201d<\/em><\/p>\n He leaned forward as if he were about to tell me the secret to the universe. I slowed leaned forward to hear what I was expecting to be some magical revelation.<\/p>\n Instead, he said, \u201cThe only difference between these two bills is what is printed on them.\u201d<\/em><\/p>\n It was at this moment my facial expression gave me away. I\u2019m not sure, but I think it was some mix of confusion, certainty, and relief \u2013 all mixed into one.<\/p>\n I don\u2019t know how, but he picked up on my look of bewilderment, and said, \u201cYou don\u2019t get it, do you?\u201d<\/em><\/p>\n Do I tell the truth, admit I don\u2019t understand the significance of this \u2013 and look like an idiot? Or, do I pretend that I understand, when I really don\u2019t, and miss out on him sharing the importance of this with me.<\/p>\n I opted for the truth. And as a result, ended up hearing what I would now consider one of most valuable lessons I\u2019ve ever learned.<\/p>\n After briefly selling me on why this will be one of the most important lessons I would ever learn, he proceeded with his lesson.<\/p>\n In life, he explained, we all look for clues before we assign value to something. Money is no different. What is printed on the money tells us how much we should value that particular piece of paper. What is printed on it is the primary, but not the only, clue.<\/p>\n The use of both social proof and authority are also in play when it comes to money. If someone approached you and said, \u201cI have the deal of the lifetime for you! I\u2019ll give you $250 bills in exchange for $100 bills,\u201d<\/em> Would you be willing to make the trade?<\/p>\n Probably not!<\/p>\n Why not?<\/p>\n Sure, despite the fact that the deal seems to good to be true, the main reason you wouldn\u2019t take the deal is because you\u2019ve never seen, nor heard, of a $250 bill. You\u2019ve never experienced any social proof that $250 bills exist.<\/p>\n Also, you\u2019ve never seen or heard any authority figures use, nor talk, about $250 bills. Have you ever been offered change or seen a $250 bill at a bank or store?<\/p>\n After driving this point home a little further, my mentor leaned across the table and said,<\/p>\n \u201cYour business is not growing more rapidly because you don\u2019t fully understand the difference between perceived value and actual value.\u201d<\/em><\/p>\n Actual Value is what it actually cost to make and sell a product, or provide a service. Profit is usually factored into the actual value of a product or service.<\/p>\n Perceived Value is what your customer believes the value of your product or service to be. There is no formula for this. Each customer assigns perceived value based on their perception of the value they will obtain from using your product or service.<\/p>\n My mentor glanced down at my shoes, \u201cNice shoes,\u201d<\/em> he said. \u201cThose look new.\u201d<\/em><\/p>\n \u201cThey are,\u201d<\/em> I responded. \u201cI needed a new pair of black dress shoes.\u201d<\/em><\/p>\n \u201cI see. If you don\u2019t mind me asking, how much did you pay for them?\u201d<\/em> he inquired.<\/p>\n I little hesitantly, I responded, \u201cAbout $250.\u201d<\/em><\/p>\n A small grin came over his face. I immediately knew my answer played perfectly for the lesson he was about to teach.<\/p>\n \u201cSo do you think there were other black dress shoes you could have purchased for less, maybe even much less?\u201d<\/em><\/p>\n \u201cSure.\u201d<\/em> Feeling the need to defend my purchase, I continued, \u201cThese are all leather, including the sole, so they should last a lot longer than most shoes.\u201d<\/em><\/p>\n \u201cHave you ever read any studies that would validate that belief?\u201d<\/em> He continued. \u201cI mean, where did you learn that all leather shoes will last longer?\u201d<\/em><\/p>\n I responded, \u201cGood point! The fact that leather shoes will last longer was an assumption I made.\u201d<\/em><\/p>\n \u201cWhat is the lowest price you think you could have found all leather shoes for?\u201d<\/em> he asked.<\/p>\n \u201cLess than $250 for sure. I would guess probably somewhere around $100\u201d<\/em> I said.<\/p>\n Driving his point home further, he asked, \u201cWhy then did you pay $250 for these shoes?\u201d<\/em><\/p>\n \u201cI guess it was the value that I perceived I would receive from these shoes?\u201d<\/em> I responded.<\/p>\n The look on his face indicated that he was about to say checkmate. He leaned forward, slightly tilted his head down and said, \u201cHere\u2019s the most important lesson you\u2019ll ever learn about pricing. Customers are always willing to purchase based on perceived value, and yet entrepreneurs get stuck pricing at actual value.\u201d<\/em><\/p>\n He then laid out four specific steps to ensure that we were pricing our services based on perceived value instead of actual value.<\/p>\n Although we don\u2019t want to price our goods and services at actual value, determining what the actual value is will provide us with a solid baseline to work from. There are several ways to determine actual value of your product or service. Here\u2019s the simplest:<\/p>\n Raw Material Costs + Labor Costs + Overhead + Profit = Actual Cost<\/strong><\/p>\n By adding those four variables together you\u2019ll end up with the actual value of your product or service.<\/p>\n If you\u2019re going to command premium prices, and make premium profits, you have to spend some time discovering the triggers that result in establishing perceived value for your customers.<\/p>\n The best way to accomplish this is to create a spreadsheet detailing the features, benefits, and prices of competitors within your market.<\/p>\n If you\u2019re not comfortable shopping your competitors, hire someone to do it for you. You want to understand everything from their sales cycle, to their closing techniques, to how they deliver the product or service.<\/p>\n What you are primarily looking for are the triggers that would help potential customers establish perceived value. As a side note, it\u2019s not the time to be critical of their process or product. Instead, stay focused on identifying the triggers they are using to establish perceived value.<\/p>\n Now that you have a solid understanding of how your competitors are creating perceived value, it\u2019s time for you to begin creating your own triggers.<\/p>\n What you likely discovered in step 2 is that these perceived value triggers are often small subtle things. It\u2019s the old adage; sell the sizzle, not the steak!<\/p>\n There are two parts to this step.<\/p>\n Part one is simply to create a list of as many possible perceived triggers that you could utilize. That may be things like new packaging, redesigned logo, improved sales process, adding a free gift with purchase or including a free follow-up consultation after the purchase.<\/p>\n Part two is to now place this list in chronological order. Meaning, which triggers need to be developed first, second, third, etc.<\/p>\n Drastically increasing your prices based on triggers is a lot like cooking. The triggers are like the ingredients that go into the recipes. And as you know, if you skip or add too much or too little of certain ingredients it can ruin the entire recipes.<\/p>\n Experiment. Add a little of more this trigger, and a little less of this one, and see what happens.<\/p>\n The ultimate goal is to help your prospective customers assign additional value \u2013 value beyond actual value \u2013 to your product or service. They are looking for triggers to help them justify premium pricing; it\u2019s your job to create these triggers for them \u2013 which will ultimately help you get more freelancer work.<\/p>\n Never forget the difference between a five-dollar bill and a one-hundred dollar bill is really nothing more than the design printed on it. Use this lesson, price your products and service based on perceived value, and both you and your customers will be happy in the end.<\/p>\nPositioning, Power, and the Painful Truth<\/strong><\/h2>\n
We Need Clues<\/h5>\n
Perceived Value vs. Actual Value<\/strong><\/h2>\n
Step 1 \u2013 Determine Your Actual Value<\/strong><\/h2>\n
Step 2 \u2013 Identifying Perceived Value Triggers<\/strong><\/h2>\n
Step 3 \u2013 Blueprint Your Perceived Value Triggers <\/strong><\/h2>\n
Step 4 \u2013 Test<\/strong><\/h2>\n
Conclusion<\/strong><\/h2>\n