and one of the most critical questions

you have to ask yourself as an entrepreneur

is how much do you charge for your product or your service.

Now, when it comes to pricing

it's such an important decision

because it affects your marketing.

Done properly, pricing could also be a marketing strategy.

So today, I'm gonna give you not one, not two, not five.

Seven pricing strategies.

So then from now on,

you know exactly how you should price

your product or your service.

You see when you are not charging enough,

so let's say, you price too low,

you're not making a profit, you're not making money.

When you price too high,

then maybe you're not getting customers,

you're not getting enough volume so you won't grow.

So there's that fine balance

to just the right type of pricing strategy

could change everything.

Pricing strategy number one, price to your competition.

That means find out what your competitors are charging

and then maybe you charge kind of the same.

Let's say, they sell this product for $100,

then you'll say, "Okay, I'll sell mine for also $100."

Now, sometimes, I also see entrepreneurs

what they do is they would take the the average prices

of the, let's say, three top competitors,

and then they would just add it together and divide it up.

That also, I've seen that before.

Price to your competition.

Now, there is some industries, in some cases,

that might be okay.

You want to be competitive, right?

Especially if you are in a what I call,

a commodity kind of a business.

That means your customers,

they are shopping for the best price.

So by having a price

that's maybe 5%, 10% higher than everybody else

within your industry that might be hurting you

because your customer's like,

"Hey, you know what, you charge $100.

"I talked to your competitor,

"your competitor only charges 90 or 95."

Now, unless you've done your proper marketing

or you know how to position yourself,

that might be a difficult objection to overcome.

So price to your competition.

Now there's a downside to this.

That means you are always reacting, right.

You're always reacting to what your competitors are doing.

They bump up their price, you bump up your price.

They lower their price, you lower your price.

You're always reacting to what your competitors are doing.

If you want to be a leader,

ideally you want to play offense.

We want to be the one that's leading.

We want to be the one that's dictating the terms,

dictating the price in the marketplace

so others follow versus you follow others.

Does that make sense?

Pricing strategy number two, price to pay the bills.

I call this the break-even strategy.

What it means is you price it enough

so that you just break even.

It covers your overhead, it covers your cost.

Well, that might be good in the beginning in some cases

that you are maybe entering a new marketplace.

You're testing things.

You're saying, "Hey, you know what,

"all I want to do is just to break even.

"I just want to test the waters.

"See how the marketplace reacts to my offer."

It's possible.

Or sometimes, you gotta use it very carefully, right.

Otherwise, you'll go bankrupt doing this.

'Cause you're not making a profit.

Is you are pricing, using the break-even strategy

to acquire a large volume of customers.

Sometimes I call that the self-liquidating offers.

Meaning this is for your low-ticket offer, on the front end.

You price it, just want to break even.

If I'm selling a book,

I don't make money from selling the book,

but it's just to break even.

That's fine, because that's what a book costs.

It's $20, right?

So you sell the book, similar price.

But you know all the profits, all the wealth

comes from the follow-up offers.

So you know all the profits,

all the wealth comes from afterwards.

The follow-up.

What you offer to the customers who have bought your book.

That's what we want to do.

Is this making sense?

Strategy number three, and that is price to time.

This is probably one of the most common pricing models.

A lot of people do this.

Lawyers, professionals, accountants use this a lot.

They charge per hour or they charge per day

or charge per week, or charge even per month.

That's kind of like a retainer model.

Price to time.

How much time am I spending on this particular task?

How much time am I spending on this project, right?

And that's how I would charge.

So they charge $20, $30, $50.

Lawyers, $100, $200, $500 per hour.

Price to time.

Now, this model is very, very common

but to me, personally,

I think this model is getting out of date.

As we are now transitioning from the job economy

to what I call skill economy,

now companies and people, they are paying for results.

They much prefer to pay for results.

And here's what I believe.

When you price to time,

the problem with that model is the relationship

that you have between you and your client,

that relationship is always, there's a conflict of interest.

What I mean by that.

Okay, let's say you charge $50 per hour for what you do.

Okay.

And you bill them $50 per hour.

And this is gonna take you 10 hours.

And you bill them $500.

Okay, that's one thing.

But let's say you could get this done in eight hours.

Now, be honest.

Are you gonna bill them eight or 10 hours?

Even if you could get it done in eight hours,

or you're gonna get it done within eight hours.

Because the relationship is,

the longer it takes for you to finish something,

the more money you make.

Versus from the client's perspective,

I want to get this done as efficiently, as fast as possible.

But yet, I'm paying for time.

So how does this work?

This is always, this is a conflict of interest.

You want to make as much money as possible.

They want you to get it done for as little time as possible.

So price to time,

and there's a time and place for this,

but I don't believe in that so much anymore

because the whole model of back in the industrial age,

clock in and clock out.

No.

I don't believe in that.

Here's what I believe in.

No fee is too high for success

and almost any fee is too high for failure.

When your clients are paying you,

they're paying for results.

When can we get this done?

And shouldn't they be rewarded if they can get it done

in five hours instead of eight hours?

If you can get it done faster, better, more efficiently,

why shouldn't they be rewarded?

Why would I have to pay more

for you to drag the projects longer?

It makes no sense.

But it is a very common model

and still a lot of people use it.

If you want to use it that way, that's fine, too.

Price to time.

Pricing strategy number four, price to cost plus.

Now this is very common in,

let's say in the construction business.

So, on the surface, very logical.

So this is gonna cost how much to get this project done?

Let's say this project's gonna cost a million dollars?

That's the cost, right?

And then you'll just add a 10, 15% mark up on that.

Let's say I'm selling this item, it's $10,000.

I'm just gonna add my mark up, my 15%, right.

That's fine, that's one way to do it.

Now you see this, again, very common in interior design

and construction and a lot of different industries.

Now what's the problem with this model?

It's very a common model.

But same thing with the price to time model,

it's something that has been around a long time,

it's logical but, again,

they are getting paid based on spending more money.

So if I'm a contractor, let's say,

and I know this project with materials and everything

is gonna cost a million dollars.

And I'm gonna earn my mark up on them, my 15%.

150K.

Now if there are ways that I could save money,

if I can use materials that are better

but actually cost less

and I get the whole thing done, maybe $800,000.

Now most contractors, not saying all,

but most contractors will think,

"Well, do I really want to get it done for $800K

"because now I make less money

"doing the same amount of work?

"Or is it in my kind of self interest, best interest

"to spend as much money as possible?"

From the client's perspective on the other hand,

the more money that you spend,

the more expensive the materials,

the more expensive the labor, the more money that you make.

From the client's perspective, it's the opposite.

How do you get the best product,

how do you get the best outcome

for the least amount of money?

Again, it's conflict of interest.

But very, very common, price to cost plus.

Now, let's say if I am building a building,

I'm building an office.

I can tell you that's not the model I would strive for.

I would do something that's very completely different.

Example, I would negotiate with the contractor,

this is what Dan Lok would do,

I would have a very clear budget and I would say,

"Here's the budget, right, let's say a million dollars, ok"

But here's what I would do.

Out of this million dollars,

chances are you're gonna maybe 150K.

I'm more than happy to pay 150K.

But if you could save me money,

the two things I look for,

if you can get it done for $800K,

you're smart, I'm gonna give you a bonus.

I'm not gonna pay you $150,

I'm gonna pay you another $20,000, $30,000.

Whatever it might be, depends on whatever the project is.

Second thing, KPI would have is,

if you can get it done on time or even early,

I'm gonna pay you another bonus

for the result that you produce.

So now then we're on the same page.

Right, you follow what I'm saying?

Now we're on the same page.

So you and I, we're thinking about the same thing.

We're focused on the same thing.

Have the same goal.

To get it done, get the project done on time or early.

You get compensated for that.

To get it done below the budget and save money,

you're getting compensated for that.

You see how that works?

So the contractor that takes on this deal

knows I am results focused.