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The Psychology of Options in Pricing with Mark Wickersham

The Psychology of Options in Pricing with Mark Wickersham – 061

September 8, 2015 by Kirk Bowman Leave a Comment

Mark Wickersham is the #1 Amazon best-selling author of Effective Pricing for Accountants. He ran an accounting practice for seven years and is now a mentor to over 150 accountants in the United Kingdom. He is also an avid cyclist.

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Price Has Nothing to Do with Cost

  • What is the most important thing you can share about pricing?
    • Pricing has absolutely nothing to do with cost.
    • In the 1990s, he believed you had to price based on time.
    • In 1999, he discovered a better way of doing things.
    • Pricing is about psychology, communication, and marketing.
    • As professionals, we are not taught those things.
    • Customers do not care about how many hours you spend doing the job; they only care about the result.
    • Hourly billing is commercially stupid because the evidence proves it.
    • When firms understand value pricing at a deep level (less than 10% do), they can get up to 100% higher prices.
    • Firms that price based on time are not focused on the value side of the equation; they are focused on keeping prices low.
  • In 2014, he surveyed 725 accounting businesses and asked how they priced.
    • He learned they charged a large range of prices.
    • A common accounting service is to act as the customer's registered address.
    • 68% of the respondents did not offer the service, did it for free or included in a bundle.
    • Only 32% charged a separate price for the service.
    • There are a lot of services that accountants give away for free because they do not know how to price it.
    • Of the 32% who charged for the service, the most common price was £100/year; they were just copying each other.
    • One firm charged £480 and had no problem selling it.
    • Mark taught a firm how to value price the service.
      • Four customers signed up and a fifth customer paid twice as much.
      • The firm was able to see an increase simply by charging for something it used to give away for free.

The Importance of Learning to Price

  • Why do entrepreneurs fail to learn pricing as a skill?
    • Of all the areas of business that you should learn, pricing is the most neglected.
    • Pricing has the fastest and best impact on bottom line results.
    • We can change how we price today and see results tomorrow.
    • In seven months, one firm who worked with Mark added £30,000 to its profits.
    • If you increase your average price by 33% and not lose a customer, you will double your profits.
  • What can an entrepreneur do today to start learning to price?
    • Ron Baker‘s book the Professional's Guide to Value Pricing is priceless.
    • There are dozens of resources available on Amazon and YouTube.
    • You need to commit some time to learn it.
    • You have to have determination and focus on getting pricing right.
    • Get over the things that hold you back and get in your way:
      • Lack of confidence is a big issue.
      • Lack of knowledge and systems also contributes.
      • Everyone believes they have price-sensitive customers. In reality, only about 20% of people who are price sensitive, and they are not customers of a professional business.
    • If you are an Apple user or Starbucks customer, you cannot be price sensitive.
    • Most people in society are value-sensitive.
    • They want as much benefit as possible for their dollar.
    • You purchase Apple products because of the perceived value.
    • Your mindset changes once you start focusing on value rather than cost.
    • If you communicate and add value, price becomes irrelevant.

Psychology, Options and Pricing

  • How does psychology influence a buying decision?
    • Accountants love systems, processes and checklists.
    • Without a process or system for pricing, it happens randomly.
    • When an accountant uses the 7-step Fastest Way to Double Your Profits, you are guaranteed to get better results.
    • Step 6 is to determine how you make the price seem tiny.
    • How you communicate the price is important.
    • “Chunk it down” is Mark's approach to breaking down the price as a monthly figure, rather than annually.
    • The Power of 9 is another psychological concept, e.g., using £499 rather than £500.
    • Left-digit management means since you read numbers from left to right, you place a greater emphasis on the left-most number.
    • If you are truly motivated to make your customer's life better, then you owe it to the customer to make your sales process compelling.
    • You cannot help your customer if they say no.
  • What is some of the research behind charm pricing?
    • There is a lot of research in pricing psychology, and it appears to be contradictory.
    • Left-digit management research is more compelling.
    • Mark has found that 7s work in his pricing.
    • Test different things and do not overuse a particular technique.
    • Every piece of research can have contradictions and might not apply to every industry.
    • A logical purchase would more likely benefit from verisimilitude.
    • An emotional purchase, like at a restaurant, would benefit from a more simple price, like ignoring the $ or £ symbol.
    • The psychology aspect is toward the end of the pricing spectrum.
  • What is more important than psychology when setting a price?
    • The first step toward value pricing is recognizing that different customers place the value on different things.
    • Most accountants now fully agree and accept that they have to move to value pricing, but they do not know how.
    • Most accountants are using fixed pricing, which is different from value pricing.
    • If you have a single fixed price for a professional service, it is guaranteed to be the wrong price.
    • There is a power behind having three choices.
    • Keep your base bundle the same price, but create a bigger, better solution for the higher options.
    • Providing three options allows the customer to decide which he should buy, rather than whether or not he should buy.
    • You can provide options for anything, including creative work such as logo design.
    • If you think it will not work, it is because you have not spent the time to creatively figure it out.
  • What is one of your best stories about creating value for a customer?
    • There are many examples on Mark's YouTube channel of inspiring accountant stories.
    • Sophia Botchway, a sole practitioner, was using Mark's software tool with her customers.
    • Sophia realized that she had been undercharging by 60-70%.
    • She used the process in 2 weeks with five customers, and everyone said yes.
    • She doubled her fee for an existing customer.
    • She signed up £10,000 of work in one week vs. her old way where it would have been £2500.
    • She now has the confidence, process and system to price well.

About Mark Wickersham

  • Website: wickersham.co.uk
  • Pricing Software: pricinginthecloud.com
  • Twitter: @wickersonabike

Filed Under: Accounting, Episodes Tagged With: Accounting, Options, Psychology

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