How To Price Your Product Properly With The Price Whisperer, Per Sjofors
Pricing is very important to your business’s profitability and brand. You really need to know your market in order to price your product efficiently. Do your paid research, find your differentiators, and start maximizing your profitability. Join Mitch Russo as he talks to the Price Whisperer, Per Sjofors about the importance of properly pricing your product. Per is the founder and CEO of Sjöfors & Partners, Inc. He is also the author of The Price Whisperer. Learn what questions to ask your customers when it comes to finding your price. Discover why it’s important to differentiate yourself from the competition. And find out what expectation bias is. Learn all of that and more in today’s episode.
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How To Price Your Product Properly With The Price Whisperer, Per Sjofors
Welcome to this moment in time when you get the chill out, tune in, and extract wisdom you could use to grow your business with your first thousand clients. In this episode, I have something special for all of my coaches. This is my commercial and you can skip it if you like. ClientFolio is the software I created to help you as a coach do a better job coaching your clients, save time on admin, create a more structured coaching environment for your clients, and give them the tools they need to interact with you.
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Now onto our guest and his incredible story. Imagine this, you grew up in one country and then moved to another to run a company, having never done so before and not even speaking the language. How do you feel about that? Would you like to jump in, move to a country where you don’t speak the native language, and then be under pressure to make something happen quickly? That’s what my guest had to do and he did.
A few short years later, he was recruited to a large public company to run a prominent division. Unfortunately, the company literally imploded but not until he quadrupled revenue for that division. Now out of a job in yet another foreign country, he decided he would do what many of us do at this point. He became a consultant. What to consult on? This is the problem for a lot of entrepreneurs, particularly in transition. What he came upon was the one thing he realized that he had been doing for years.
That is he has focused on helping people create the proper pricing structure for their products and services. That might not sound like much to you. After all, you have a service, you have a product, and you put a price on it. Did you know that by optimizing that price, you could possibly double or triple the revenue that you’re generating? This gentleman that you’re about to meet is called the price whisperer. He is going to take us through his process so that we can optimize our prices as well. Welcome, Per Sjofors to the show.
Thank you very much, Mitch, for having me on the show. I’m excited about this interview and I hope the audience will find it entertaining and informative.
I have a feeling they will. What we like to do at the beginning of the show is remind people that it’s a good idea to shut off other distractions. Most importantly, get yourself a place to write some notes, whether it’s a computer or a pad and pencil, however, you do it. Note-taking is going to make a big difference in the outcome of your experience on this show. Per, tell us how this all got started for you.
I grew up in Sweden, which is one of the reasons why my last name is unpronounceable to most people. First of all, I have an Engineering degree and also an MBA, but I worked as an engineer. My boss kept telling me that I needed to go into sales. I resisted that for a couple of years until finally, he said, “Per, why don’t we set up a company in Switzerland and you run it and you develop that into an international powerhouse selling professional electronics over the European market?”
We did and I was scared out of my wits because I have never started a company before. I have never been a CEO before. I have never sold internationally before and I didn’t know the language. As I was scared out of my wits, I was also incredibly excited because this was a challenge. It was something new and I’ve always been looking for that something new. I remember when I was in the military. I volunteered for everything I could volunteer to get out of the routine. It’s the same thing with a couple of the jobs I had prior to this move. I volunteer whenever there was a chance to volunteer.
You’re not alone. One of the traits of an entrepreneur is someone who likes change. I work with a company that uses a short quiz to determine what your why is. I have a feeling that we have similar if not the same why. My why is basically and simply stated to find a better way. That why has driven my entire life. It has driven my entrepreneurial life, my personal life and my creative life. Interestingly enough, you’re a shiny object guy. You’re attracted to what’s new and different. You like the idea of changing the routine. What happened after you went in there and built up this company? Did it become the powerhouse that you had hoped it would?
It was successful. It could have been more successful, but it also opened my eyes to pricing. We were reselling products from mostly American manufacturers. We didn’t have control of pricing. The main company that we represented was way underpriced. We had a product that had more features in it and was better in many cases than the market leader and we were half the price. We thought we killed the market, but we didn’t. We were struggling because that low price sets an expectation in the minds of potential buyers that it wouldn’t be any good. They paid a much higher price for the market leader with a quite inferior product.
Let’s stop there for a quick second because I want to ask about market perception and brand. Here’s a generalized example. You were to be shown a sports car and it said Ferrari on the sports car, and you were to be shown another sports car as attractive and as powerful and it had the word Toyota on that car. The Toyota was one-third the price of the Ferrari. For some reason, would you want to raise the price of the Toyota and make it the same price as the Ferrari or even higher? Doesn’t the brand have a lot to do with pricing?Low prices set a bad expectation in the minds of potential buyers. Click To Tweet
Tremendously. If you think of what a brand is, it is a promise of a particular quality or a particular benefit. You mentioned that I’m coming out with a book and I’m using the car industry as an example in several locations, and how important it was for Toyota to create a new brand they call Lexus. Later in my career, I was involved in Japanese companies and I spent a lot of time in Japan. You got home and you saw this Toyota Excelsior that was called the Lexus LS 400.
Other companies have made mistakes in that. Volkswagen came up with this car called the Phaeton. It’s built on the same underpinning as a Bentley. It has a V12 engine. It was $80,000 or $90,000 at the time. I drove it and it was probably the best car I’ve ever driven. It was a complete failure because Volkswagen is associated with cheap econoboxes, not luxury cars.
I own the first Lexus LS 400. I bought that car the first year it came out. The reason I bought it was that I was influenced by Bill Gates. He bought one too. I said, “Bill Gates can buy one of these,” and I was ready for another car. I had my car for a long time. I bought this car and I thought it was the best car I ever owned at the time. I hear what you’re saying. Also, the Phaeton as well, which is Volkswagen’s high-end car. I never drove it but I realized what an incredible engineering masterpiece that car was and how underappreciated it was by the American market. The brand has a lot to do with pricing.
I had an LS 430, by the way. You also have to look at a brand as a way of looking at what business you’re in. If you think about Red Bull, for example, their business is extreme sports entertainment. They monetize that by selling a caffeine-laden drink. We’ve done the research and we know that willingness to pay for Red Bull is a buck higher than their competition.
Maybe there’s a lot more to what you’re about to tell us. What I want to know is, how can we use this? If I’m a coach or a consultant and I want to figure out what my prices should be or maybe our audience has products that they are focused on now, how could they use this process that you’ve perfected over all these years to accomplish that?
First of all, there are a couple of things to consider. I’m saying this based on the work that we’ve done. I’m not inventing anything here. One of the coaching companies we’ve worked with told me that coaching goes to HR to die. What we discovered is that the reason why HR might want to engage a coach for a certain person and the reason why the C-suite wants to engage a coach are completely different. First of all, it depends on who you selling to and what the specifics of the coaching are.
Another thing that we also found very interesting is that those who have the highest willingness to pay for coaching within the C-suite are a level just below the CEO. The CEO is already where he or she wants to be. It’s the level below who wants to better themselves and take coaching lessons for that. They aspire to be the CEO at some point. Because of that, they’re willing to pay higher prices than the CEO itself.
It makes a lot of sense. What you’re saying is the more that you generalize, the lower your prices are. I’m talking about a service provider like a coach or a consultant. The more you specialize and the more you focus on a specific target market, the higher your prices can be, theoretically. I say theoretically because there are a lot of other variables in that equation, aren’t there?
There is. Competition plays a role here but also how you position yourself. Do you position yourself as somebody who comes in and just does coaching or consulting? Do you position yourself to be a thought leader and be the one person that is going to make or break a company and take a company to the next level? Having said that, it also has to be believable.
You have to have proof that you’ve done it, I would assume. That’s why I call myself a business growth strategist, not a coach. The reason is that is what I do for clients. I have dozens of videos and written testimonials to prove that I can do what I say I can, and yet there are people who are in my world that are above and below me. When I say above and below, I’m talking about invisibility, price, and at some level, even results.
I’ve never worked with a billion-dollar client. I’ve worked with a multi-hundred-million-dollar client but not a billion-dollar client. I have guys in the world way above me like Jay Abraham and Tony Robbins. These are guys that consult with multi-billion-dollar companies and make my fees look like lunch money compared to what they charge.
That’s true. I mentioned that I’m coming out with a book and I sent an advanced review copy to some prior clients. I got one guy. There were a dozen people that wrote back but one said, “Per, you helped us grow from about a hundred million to way over a billion. Thank you very much.”
That is something you need to put in the book.
It is in the book.To solve pricing problems, you need to be willing to pay for research on your marketplace, not your customers. Click To Tweet
Very good. To our audience, in case you don’t know. We are speaking to the incredible Per Sjofors. He is the price whisperer. He has a new book coming out and let me guess, the name of the book is The Price Whisperer. That book is available on Amazon. At the same time, you can read more about that on Per’s website, where you will be able to access the address including an incredible gift that Per has for us. You could see all of this over at YourFirstThousandClients.com. Per, let’s get into details. Let’s fix the problem together. Talk about how we can help somebody here fix their pricing problem. Where do we start?
If you’re launching a coaching company or consultancy, the right way to do this is your willingness to pay research. Willingness to pay research reach out to your marketplace. It’s very important to realize that it needs to be your marketplace, not your customers. That is because in willingness to pay research, not only is it possible to very accurately predict sales, volume and revenue at different prices. It’s also possible to understand what customer profile will support higher prices than other customer profiles, thus being more profitable.
Positioning statements, marketing channels, and marketing messages lead to higher interest and support higher prices. Likewise, specific features and benefits of the service will inevitably lead to a higher willingness to pay and thus, support higher prices than other features and functions and benefits. Once you know all of this, you get a recipe for how to take your company to the next level.
If you don’t have the resource to do this willingness to pay for research, there is a way you can do this. That way means that you reach out to at least 25 people within your market that are potential customers, but they’re not prospects and they’re not customers. You ask them two simple questions. You describe whatever your product, your differentiators, and your experiences are, and then you ask them two questions.
The first question is, “Now that you know all the benefits that we give, what is a price that is so low that you think we won’t deliver on our promise or that we will not be good enough?” You ask them a second question which is, “Now that you know all the benefits that we give you, what is the price that is so high that it doesn’t matter how good and beneficial our service is, it is still going to be out of your budget?” Once you have these two data points, you averaged them. Once you have the two averages, you have a span of where your pricing should be. It should not be below the low price and it should not be above the high price.
I’ll restate them just to make sure I have that right. After you describe the features and the benefits to not a prospect and not a customer but someone in the typical audience range of who you would be talking to, you might say, “Now that you know all the benefits that you provide, what is the price that is so low that you think we won’t deliver on our promise?” That question is psychologically very interesting because what you’ve not done is say, “What would you pay for this service?”
You can never ask, “What will you pay?”
In a sense, that is a breakthrough in the way I would think about this. This is a very valuable conversation because I never thought of it from this perspective. The second question is a little harder to quantify. If you say, “Now that you know the benefits of our services, what is the price that is so high that you think you would never pay it no matter what? The problem with that is it could be $1 billion or $1 million. The first question I think is more important. Is it true?
You’re right in both of your statements. If somebody says $1 billion and you’re a two-man band consultancy, that’s the wrong answer. You know that your $50 million potential client is not going to have $1 billion to pay. There may be some back and forth here. When you hear $1 billion, then you’re like, “Can that really be true?”
Is that all there is to it? These are two very insightful questions.
There’s much more to it but this is something that a consultant in a small consultancy can do. A small company of any kind that has a particular service or product wants to make sure that they don’t underprice and don’t overprice.
You mentioned before that doing paid research is probably the best way to do it. What would be the price range of paying for that research?
It’s in the tens of thousands of dollars.
Somebody might think that that’s totally viable for them.Being freemium is a double-edged sword. You’re giving things for free but when something is free, people don't end up valuing it. Click To Tweet
I mentioned one spectacular win but most companies will get a return on investment that is 2 to 3 weeks. Most companies will see a doubling in sales growth, 25% to 40% higher margins and more than a doubling of shareholder value.
If someone were interested in doing that, could they contact you and would you be able to get them directed to potential research and help them get set up and all?
Yes, of course.
That’s good. I just want to make sure. We’re covering all bases here. Now that we understand the answers to those two questions, which I think are revolutionary in the way you think about pricing all along, what is the next step?
In the case that you’re a small consultancy or a small company selling a product, if you can get another 25 people to ask the same question and another 25 people ask the same questions, then you can start to look at segmenting this. You may find from these 50 people that you have twenty of them in a certain industry or a certain size or a certain demographics. Another twenty in another industry or demographics or location or whatever. You can then see if there are differences.
What would happen if you entered a crowded market with a quality product? When I say crowded, let’s say there are ten other products that do the same thing as yours does, and the claims are all relatively similar, “We handle this problem for you. We save you time. If you follow our process, you’ll make more money.” Where do the differentiators make a difference? How do you use them?
Differentiators are what gives companies pricing power. That goes back to the first thing we talked about, which is brand because differentiators are a brand. Differentiators give you a promise and you need to know and you should ask your audience as well, “Out of all these features and functions, which one is the most important? Which stands out? How can we, among competitors, deliver something that is at least a little bit unique?” Even if you think about pure commodities, you can differentiate yourself with better customer service.
You can differentiate yourself with maybe quicker delivery. In my teachings, I make a point of this. This is a few years ago. I went to Amazon to buy one of these blood pressure measurement devices. As I was looking for the various choices, I saw pictures of the same device, but they had completely different prices. The difference was that the cheaper one had very short descriptions translated from Chinese by Google translate. It wasn’t very good, to be honest. Whereas the ones that were more expensive had benefits statements and descriptions. There was much better language. They were much better at describing why I should buy this or not.
Which did you buy, knowing that they were both the same?
I bought the cheaper one.
I knew it. Why? It’s because you already knew that you were getting the same product even though one had a better presentation than the other. That’s a big competitive issue. Particularly in software. I publish coaching software for coaches. A lot of people publish software for coaches. I claim and I know what my differentiators are. Other people claim similar differentiators but they’re not. These are huge differentiators that have similar language patterns when describing them.
In my case, I have to do some research into my competitors and understand what they’re saying as opposed to the 3 or 4 headline words that they use. How much value do you think a buyer places on those versus, “It’s a free trial or it’s $1 to try. Why don’t I give it a try?” Where do you think the line there is strong?
For software, freemium is very important. It’s also a double-edged sword because many times when you give something away, people don’t value it. In a freemium situation, you need to make sure that what you give away for free is something that adds true value. Having said that, it also needs to be so easy to use so that your customers are not getting confused by the free bundle.
Free would depict cheap, which would depict simple. In our case, when we first released our software, we gave away free trials. A lot of people signed up for free trials but the conversion to a paid trial was very low. When we started charging for $1 trials, we got less signups but our conversion rate went through the roof.Focusing on profitability enables companies to elevate themselves to the next level. Click To Tweet
You had all these people who signed up for the free version and they never even use it.
Think about all the free books you’ve downloaded that are sitting on your hard disk’s eBook graveyard now. That’s part of the problem with people. I’m about to give away my free book too, but the bottom line is that it’s linked to an entire backend system that hopefully, people would be interested in finding out more about. At the same time, many people’s free books are still sitting somewhere on my hard drive. This has probably happened to you too. You do a search for something and something pops up that you didn’t expect. You’re like, “I forgot I had that.” You have to avoid that.
I have instances where I’m starting to read a book and realize, “I recognize this,” because I bought it already.
There’s a feature on Amazon that says, “You own this book,” when you go to buy it again. It has probably saved me countless double purchases. Let’s go one step deeper. People might have physical products and they have costs of goods, then they have the cost of marketing and advertising. They have fixed costs and they have what their accounting department would tell them are reasonable profit margins that they must adhere to. Where do we use pricing to take a product that has a bunch of fixed costs and a bunch of marketing requirements in terms of dollars? How do we get more for that same product? The brand is equivalent to others as well. Where does pricing make a difference here?
First off, we have to think about that. There’s something called an expectation bias. An expectation bias is something that sets an expectation of the benefits of a product or a service prior to the purchase. It also sets an expectation of customer satisfaction after the purchase. This has been proven many times. For example, a $0.05 aspirin is not very good in curing your headache. Whereas the $0.50 aspirin is far more effective.
I know that from my own little world or as part of that audio file community. There are people out there spending $5,000 on a power cord. There’s no technical way possible that it could make a difference, yet they hear a difference. Because they spent the money, they hear a difference and they’re happy customers. Specifically, how it works is on the other end, when prices can be too low, it means that even lower prices will lower sales volume.
There’s always a balance point. A price that gives you a balance point and the highest sales viable, but the highest revenue, you get at a higher price always. This is what comes out of this willingness to pay research. When you have a prediction of sales volume and different prices, you can see what price is going to give you the highest sales volume. We also can predict revenues and profits at different prices. That means that once you have this data, you can select, “Do you want to maximize your sales volume?” Sometimes you do because of the network effect. “Do you want to maximize your profitability? Do you want to be somewhere in between?”
We almost always recommend companies to maximize profitability. There’s a very simple reason for that. We all know that profits drive every company. If you don’t have profits, eventually your investors are going to give up. You have to become profitable very quickly. If you have higher profits, it means that you can spend more money on marketing. You can spend more money on product development. You can spend more money on becoming more competitive. You can hire the best people and so forth. It’s that focus on profitability that enables companies to elevate themselves to the next level. Having said that, there have also been instances where we’ve done this research for startups and found that there is not a price that the market is willing to pay that will give the company a profit.
You can prevent disasters in advance by letting the founders know that this particular market proposition, this product and the way it’s positioned, and this audience that you plan on offering it to will never make you a profit. That’s interesting. Per, I hate to cut you off because I’m enjoying our call but we do need to move on to the next segment of the show. I’m going to ask you a couple of questions now. These questions have been helpful in helping our audience to get to know you better and know my guests better as well. Here’s the first question. Who in all of space and time would you like to have one hour to enjoy a walk in the park, a quick lunch or an intense conversation with?
Walk in the park is probably appropriate here because I would like to spend some time with Steve Jobs. I think I’ve learned a lot from him. I was struck when he died even though it was expected. Despite all his faults because he had many faults too, what he did was mind-blowing. He comes across as the marketer par excellence.
I agree. Many people have repeated that as the one person. I’ve repeated that as well. I love the fact that there’s a different reason each time and that’s super important. To pick the mind of Steve Jobs would be an incredible exercise. I wish he was still around because we need him in a world of products that don’t deliver and quality that isn’t always there. I agree with that. The next question is what we call the grand finale or the change the world question. It’s all about what you care about. Here it comes. What is it that you were doing or would like to do that truly has the potential to literally change the world?
First of all, I’m involved in a company that does business education for high school kids. It’s nonprofit and I’m on the board. We do an annual business plan competition. We do summer classes in business education for high school kids. That’s extraordinarily important to do because they need to come out in the real world after school and know that they can change their lives themselves.
Likewise, I work with all the accelerators and the entrepreneurial programs in all the universities here in the Los Angeles area for the same reason. They need to know that there’s a better way of doing it. It’s when you start where you need money the most. Don’t leave any money on the table. I hope, that will change the world at least for some people.
It will. As I’ve heard many people say many times, which rings true for me, “Even if you change one person’s world, that’s a great start because maybe you can change too.” I think you’re on that path, so it’s great to see. You’ve been a pleasure to chat with but before we end, I want to tell the audience a little bit about this very special gift. A lot of people give things away when they get on an interview like this. This is not the typical gift that you get for free. I have a feeling that this is not one that’s going to be in your graveyard. It’s not going to end up in your eBook graveyard. It’s an entire course that now is a paid program for $495. Would you describe the course for us, Per?
It’s a masterclass in pricing. You’ve heard a little bit of tidbits in my talk here. It’s an understanding. It’s all about there is to know about pricing and how to use pricing to elevate your company to the next level. It’s 4.5 hours of video interviews with 19 episodes that are between roughly 10 and 18 minutes long. Every episode has a little questionnaire after it. If you take the course, you get a certificate. You will learn a lot about how you can use pricing. Putting pricing at the centerpiece of your business will transform your company.
I’m excited about this. To our audience, I hope you’re excited about it too. The way to get this course is to go to YourFirstThousandClients.com Per Sjofors’s show page. You will see the course and the special code you will need in order to get a 100% discount on the price. Per, thank you so much for that. I am going to set time aside to go through your course myself. It’s incredibly interesting and valuable. At the same time, for anybody who would like to get a hold of Per, all that information is also on that show page. Per, could you specifically tell us what your website is?
My company is my name. It’s Sjofors.com.
That is your website and that’s where people can reach out to you if they would like to engage with you about their own specific situations.
Also, [email protected].
That is your email address as well. Once again, thank you for your time. This was an incredible experience for me. I hope our audience too. We will talk again soon I’m sure.
Thank you very much, Mitch, for having me and I enjoy the conversation immensely.
- Per Sjofors
- The Price Whisperer
- [email protected]
About Per Sjofors
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