182. Customer surplus and price to value ratio

How to Sell Advice

When you price your services, there's something called customer surplus to consider.

Customer surplus, in this case, means the amount of profit your customers gain after deducting your costs.

Not all profit is financial, but it's easier to think about it in financial terms.

On the one hand, you want to price your services high enough to attract people who need and value the outcome of your services.

People with the highest needs want to buy expensive solutions because they need them to work. Higher prices are both a signal of quality and they allow you to invest the resources to do great work.

On the other, you don't want to price too high or you risk capturing too much of the customer surplus, making your products and services less compelling.

It also makes you less likely to be referred because the price to value ratio after an engagement wasn't high enough to have people rave about you.

You also can't drop your prices too low or your ideal customers also won't buy it because, profit aside, they want and need something of quality that will actually solve their problems.

So should you price your work? Give this a listen.