How to Find the Price People Will Actually Pay

0:00Wealth is so concentrated on the I did my favorite video of the year. I I did this breakdown. And because it was my favorite video, I think it got like 300,000 views. But like >> [laughter] >> But what I did was really interesting is that I took wealth in the United States and I had a I had it represent $100. 100% of wealth is $100. If you looked at it, right? And you had a circle for all, you know, 100 people at different percentiles, right?

0:24There's like $2 in the bottom 50th percentile. The bottom 50% of people has roughly >> $2 in 100 of the 100 in wealth. >> Wow. It's crazy. And then you've got your next 40 and I think that was like $27, something like that. Then you have your next 9%, which has like $36. And then the top 1% has 31. Hopefully the math maths, but it's somewhere somewhere in the neighborhood.

0:51And so when you look at that division and then you're like, who should I serve? Many people who are starting out are here. And the only people they see are here. And so their view of the world is not accurate. And this is why they stay broke. Because they try to sell to other people who have no money and then assume that no one has money.

1:16>> The interesting thing I noticed and I think anybody that's run a service business will be able to relate. >> Yeah. >> Is when I started out, I was selling to >> [laughter] >> startup founders who had an app idea, whose marketing budget was approximately $10,000 and I was asking for $10,000. >> [laughter] >> And they were watching me. They were kept counting every download they got on their apps. And slowly we managed to move up. And the remarkable thing is, this is a crazy thing to say, but it was easier from a client management or a client account management perspective to deal with Coca-Cola than it was Dave with his dating app idea.

1:50Coca-Cola, who would give you potentially six figures in budgets, um would would be a little bit more casual than Dave with his dating app idea where he'd put his mortgage on the line. But it's not it's not easy to move up because to get that meeting with Coca-Cola, to be able to present to them, you got to earn it somehow. So it's all well good saying it, but the reality of getting up there is they they think more about credibility, track record. They'll they'll work with people who are highly credible and who who they can see a reality behind.

2:19>> And so it's not there's nothing wrong with starting to sell to friends and family, but the the goal again, that's if your goal is to make more money with the business should be to move up market. And if you look So this is kind of interesting, something I've noticed. If you look at the price of a service, this is specifically for service businesses, the price of the service almost has a one-on-one correlation with how advanced the business and business owner are.

2:45Just as a forcing function. Because in order to go up in price, like a service business done well means you did a good job, you have more demand than you have supply. And so what do you do when supply and demand crisscross? You go up in price. And so you continue this loop and as long as you continue to deliver more value than you're charging for, you continue to have more demand and you just keep laddering up. And this is why price is such a strong signal for value, which why when you're starting out it's hard to hear us say, "Hey, add a zero to your price tag. Add two zeros to your price tag." Because if someone comes to me and says, "Hey, I want to do all of your social media management for $2,000 a month." I'm like, "Dude, you can't even handle me."

3:22Like you could like even if I said yes, you can't. It doesn't The math doesn't math. There's no way you can do it. And so if someone comes to me like the minimum I'm probably going to be willing to spend is I don't know, 15,000 a month for a vendor? Like the minimum I could really possibly and it'd be probably a a smaller shop and I know the founder's probably still integrally involved and I'm fine with that. I'm okay with some founders like being good and basically me seeing them as a fractional employee that I'm paying less and that works fine. All that to say like you want to have your price go up. One cuz you serve better customers, two cuz you have better margins, three because there'd be less static and four because the signal of how good you are what you do.

3:53>> Mhm. >> And the best businesses and business owners will know, "Oh, this is for me." You signal to them that you like you want to go up market, but you have low market prices. There's um there's something called the Van Westendorp pricing analysis. You might have heard of it. It's from the 1970s. I do this most times when I launch a new offering. And so, there's four questions you ask. Number one, at what price would this be so expensive that you wouldn't even consider it? >> Mhm. >> Number two, at what price would this be so cheap that it would be impossible that it would be able to be valuable. It It'd be too cheap.

4:20At what price would it be right at the edge? You'd have to really consider it, but you'd end up buying it. And then at what price would it be a bargain, a good deal? And so, when you actually take a scatter plot to this and now I have to I used to have to do these manually. Now, you can literally just take the data and put it right into the AI and say, "Hey, run a Van Westendorp analysis on this," which is amazing. So, you can get it in 6 minutes. Um and so, you get these there's four points on the graph. If you have the scattered dots. And so, you have the point of marginal cheapness, which is basically beyond this point the majority more people will think it's too cheap to be believable.

4:52>> Okay. >> And above this price, it's too expensive to be considerable. And so, what you can find is you can do area under the curve to see at what price would I make the most money if I had a higher friction sales process. >> Mhm. >> And if I wanted people to simply purchase it, so if I wanted to have automated sales process, where my range is. And so, there's a range in there where it says, "Okay, right here is the point where you'll make the most number of sales." Now, you have to factor in margin, like gross margin to the product, but you can guess like this is how when you want to launch a shampoo, this is how they do it.

5:24And so, we can price it precisely. >> Is it a bell curve or is it Oh, yeah. >> So, is it like that? >> Yeah. But sometimes it's so Interestingly, sometimes you have double Gaussians. That'll happen. >> Mhm, cuz it's different customers. Okay. >> So, when so when I run these, I ask those four questions, but I also ask for the customer stats. So, then I can slice it by saying, "What you rich customers think? What's the pricing curve for them? What's the pricing curve for poor customers? What's the pricing curve for home services?

5:51What's the pricing curve for And so then you can get really, really accurate with initial pricing.