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Pricing Points, Perceived Value And How To Make More Money Per Sale

By Yaro Starak
20 Comments

BetterEdit LogoMy business, BetterEdit.com, offers two services – essay editing and thesis editing. When I originally set up the business, which was nearly six years ago now, one of the hardest things to do was come up with pricing points.

Back then I wasn’t all that clued in to how important perceived value is and how closely pricing ties into you market targeting. My goal was simple, I just wanted to come up with a pricing point that met three conditions -

If you think about it, those three conditions are the foundation for business. You need people to buy what you offer and you need to be able to produce the value at a profit. Back then it was simple maths and whether I could satisfy both groups of constituents, editors and clients, could only truly be determined by testing the market. So that’s exactly what I did – tested the market by setting up a website, hiring an editor and sticking up some prices.

How Did I Choose Test Prices?

I’d like to say I had some form of scientific method for coming up with my very first pricing scheme, but I didn’t. All I did was use some intuition and my own perception of the going rate of pay for contract editing work to come up with price. I figured that editors would be happy with anywhere from $15-$30 per hour and I hoped the market (the clients) were willing to pay more than that for the service.

I didn’t want to charge a “per hour” fee to clients because I knew that would get fiddly to negotiate and hinder sales. When a person comes to a website they want to know how much something costs immediately so they can make a value judgement instantly and not have to wait for a quote. You will lose customers if you force them to apply for a quote. Just knowing that they have to do something in order to find out a price is enough for a website visitor to surf away – remember that!

Whenever possible, if you can, come up with commoditized pricing for your products or services. By that I mean solid numbers you can display on a website pricing page. Some complex or high cost products and services must have a quoting process, including some form of contract, but if you can avoid these steps, do so. Certainly in my case with an editing service it should be possible to come up with a commoditized pricing structure…

…and you know what – I didn’t quite get it right first time. I had some good assumptions about not wanting to charge based on a per hour rate, but I still made it too difficult to calculate a price.

The first pricing structure I used was this -

$0.04 per word.

This meant that potential customers could calculate the price of their job by multiplying the number of words in their document by 0.04. This was still too many steps and I had created a sales barrier and made more customer support work for myself too, since I often had people emailing me for quotes because they didn’t understand how to calculate the price on their own or were too lazy to bother.

Nevertheless, for the first year or two of operations this pricing method was the foundation for the business. For the editors, how much they got paid depended on how quickly they could produce the service. If they were paid $50 for editing one essay and they could do it in one hour, clearly that was a good rate of pay. If it on the other hand they took four hours to do it, the rate of pay was not so good. Through the years we have had one or two editors drop out since it just wasn’t a profitable exercise for them.

Over time the best editors who worked quickly rose to the top. While not every job was ideal (every now and then a nightmare job came through which takes a long time to complete due to the very poor quality English), on average editors who were speedy and maintained a high level of quality could earn a good hourly rate. This would also result in greater client satisfaction because we could meet very tight deadlines and of course I was happy too, since the pricing structure was profitable.

The foundations for a business were laid and all I needed to do was increase the volume of work coming in and make sure there were always great editors available who were eager for the work.

The Pricing Structure Evolves

Over the next few years I played with the pricing structure by increasing or decreasing the per word rate based on the size of jobs and how quickly the client required the document back. However I was still doing too many quotes manually because many clients were confused, which wasn’t that surprising given most of the clients had English as a second language – hence they needed BetterEdit – but it also made it difficult for them to decipher the text on the website.

I knew if I was doing so many manual quotes there were probably other potential clients not even bothering to ask for a quote because they didn’t want to make the effort. People want instant gratification and having to wait for a quote to come back from an email address or even send an email or fill out a form in the first place is just too much to ask. You don’t have a very big window of opportunity when someone is in a buying mood so you must make sure the process is smooth, easy and as barrier-less as possible. In my case it had to be something that a ten year old could do given some of my clients had the equivalent level of English fluency.

The problem was when a person came to the pricing page they didn’t actually see prices, they only saw a formula for determining the price. That meant they had to do work. What I needed was an actual list of prices so it would take one glance to figure out how much the service costs.

Using a “per word” system was the best format because generally the amount of words in a document dictated the amount of time an editor had to work, so that wasn’t going to change, I just needed it to be easier to determine the price for a given document size. I used the same pricing system I had in place, broke down the job sizes into 500 word blocks and slapped a price on each “word bracket”.

While the prices have changed over the years the structure hasn’t and you can view it online here -

BetterEdit Editing Prices

Thesis Editing – Higher Prices

While there have been numerous tweaks to the BetterEdit pricing system since then I have been very happy with how it functions. After I instigated the block prices I rarely received quote requests except for one situation – large thesis jobs. Thesis projects can cost anywhere from $500 to $1500 per job and as a result I originally thought it was necessary to have a quoting system in place.

Previously I listed on the website pricing page that clients need to send through a sample or their entire thesis if the word count was above 10,000 words so we could determine a quote. This system was working well enough and I didn’t have to do too many quotes because we simply didn’t get that many thesis jobs.

Over time I realized that generally there were two types of thesis clients -

  1. Those who wanted a quote because they were price sensitive. These clients almost never purchased the service.
  2. Clients who were willing to buy but since we didn’t have a set pricing structure they had to go through the quoting process because I forced them to. These clients almost always ended up purchasing and were not very price sensitive (within reason of course).

The obvious thing to do given this situation is create some concrete prices for thesis projects. Once the prices are solidified the price sensitive clients simply won’t buy and we won’t waste time doing quotes for them and the clients who are the right target won’t have any resistance to make a purchase. It seems so simple now!

I’ve only been able to do this in recent months because I have had data available on thesis job pricing from previous year’s work. With the experience under my belt I knew what pricing points worked for all the usual constituents – the editors (adequately paid), the clients (willing to pay for the perceived value) and BetterEdit (make a profit) – so I could come up with pricing brackets.

Perceived Value

Nowadays we do more thesis work than ever before and it’s amazing to wake up to emails where a client has purchased thesis editing and sent through $900+ for a single project. Previously I thought spending that much money without at least asking a few questions over email to check out the business was not realistic. Of course, with a better understanding of perceived value it makes perfect sense, plus it certainly helps that 99% of thesis clients leave happy – it’s not *just* perceived value – providing real value does count as well, but doesn’t impact price as much as you would think.

If a person has been referred to our business by a friend or they have spent time reading the testimonials on our website or simply are comfortable spending money online for a service they need (or any other justification within the client’s perception), there is no difference between a person spending $100 or $1000 on our service. It all comes down to perceived value and target markets.

With hindsight this all seems very obvious to me now, but it took over five years of running the business, tweaking the pricing system, interacting with clients and editors and coming to understand the supply and demand marketplace for academic editing services, to reach this point.

Lessons For You About Pricing

The main lessons I want to get across to you are the following:

Pricing is an interesting topic because it crosses over two distinctly different disciplines. You have maths – the numbers – which never lie and are straightforward, and you have the psychology behind perceived value, which is by no means clear-cut – we are talking about human emotions after all. When you can work these two elements together the business potential is significant. There is not a single successful business operating today that doesn’t understand and leverage the delicate relationship between pricing, target markets and perceived value.

Yaro Starak
Perceived Valuer

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20 Comments

  • Great read Yaro… I will definitely be bookmarking this post for future reference.

    I was just reading another blog post I found on YE Blogger here which was explaining the same point that you need to make the ordering process as easy as possible for the customer.

    btw, what’s the revenues like for Better Edit these days? … I remember back a while ago it was $6-8k a month

    cheers
    nathan

  • Luc

    Hello Yaro,

    I must say that i really enjoyed this article and also i like to say this is a problem i’ve been struggling with a bit lately. I launched CommerceCubes back in may and i’ve been seeing steady work but i am looking to automate the sales process now because quoting is just taking up too much time.

    I am trying to quantify development charges so that i can make good profits running it so running across your article gave me a few ideas which i appreciate.

    I am not going to charge per line of code written or anything but i need a standard way to get people buying development services that differs and is better then the competition. Its one of those things i’ll need to test much as you’ve had to do. Any thoughts Yaro since you’ve got experience with a similiar model of business?

    The other point i enjoyed was about how slightly higher pricing gets rid of the bad customers… the ones you spend too much time trying to win over. Thanks Yaro and talk soon

    Luc

  • Hey Yaro – another great article full of simple, effective tips. One aspect of pricing that you touched on but didn’t go into detail with is “value pricing” – a lot of people underprice what they do because they can’t / don’t adequately express the value they offer to clients (or they don’t understand their own value). Where possible, I suggest testing pricing to see how the market reacts.

    Your point about higher prices keeping low-quality prospects away is also a salient reminder.

    Isn’t it funny how business and marketing almost always comes down to the Marketing 101 basics that we tend to forget and need to be reminded of constantly?

    Thanks for the article.

    Will

  • Great article, and good job connecting with my current needs. I am currently looking, or have been for the past year, for a good price structure. I’ve recently raced my rates and I can see where the value in your customers comes in. It is exactly as you explain, you get customers that are willing to pay whatever (whitin reason) for your services. And it all has to do with, whether or not they understand the value you bring to their lives.

  • Hi, Yaro. You mentioned that you get more theses now than ever before. Those who submit theses, have they previously submitted smaller works?

    Does the graded pricing structure help win repeat customers, especially for premium services?

    -TimK

  • Thanks everyone, glad you liked the article.

    Tim – 99% thesis clients are one offs since that’s the only paper they write and didn’t know about BetterEdit or it didn’t exist yet during their undergrad/previous studies.

    I’m not sure what you mean in your second question?

  • Hi, Yaro. What I was asking is whether your customers try out the service on small projects before dropping the big bucks.

    Now that BetterEdit has been around a few years, I wonder if you’ll start seeing more thesis writers, after years of inactivity, suddenly want to use the service again. (Sounds like a marketing opportunity, eh?)

    -TimK

  • Yaro … very good and detailed post. I will add it to DIGG right now.

    My take on this is … in order to price a product or a service you have to know your target market (the customer). Only then can you work your marketing around them.

    For a certain target market if your price is too low you won’t get any business because they’ll think that your service is not up to the standards. For another customer, if you go a dollar higher than your competitors, you’re finished.

    Important thing to keep in mind is … “If you’ve never overcharged a customer, you are not charging enough”. This means that you have to raise prices a little as a test and just when you hit that red flag when your sales drop, that’s when you know that you hit the sealing and you should lower the price right below that.

    Igor M.

  • Tim – ahh, okay, I understand and no, generally most thesis jobs are one offs, the first and last time they use the service. Generally a thesis is the last academic paper you write so that’s what I would expect.

    The only time they might come back is if they plan to have an old document published and they want to get it up to scratch for publication.

  • Another thing about deciding pricing is taking your competition into consideration.

    You can see what your competitors charge for a similar service/product and price your product alike. Once a potential consumer sees your price, and maybe after comparing your price with others, he may lean towards your product more than a competitor’s because of the way you marketed your item.

  • Personal Finance Carnival #63…

    This is the first time that I host PF carnival at 1stMillionAt33. Thanks to Flexo at Consumerism Commentary for giving me this chance to host PF carnival #63. If you’re first time here on my site, you can take a look at my SiteMap on the right …

  • [...] Equally dangerous as a tiny market are tiny margins. If you study pricing and market differentiation you will learn all about premium pricing and discount volume pricing. I’ve discussed pricing and perception points before and no doubt your pricing structure will be one of the most difficult areas to formulate as you go into business. It’s a sticking point for me that I tend to develop and change over time, as hazardous as that may be (see this article for my pricing story). [...]

  • [...] say things changed and if you read through the archives of this blog, in particular this article – Pricing Points, Perceived Value And How To Make More Money Per Sale, you will see how my business strategy improved as I learnt more about business from guys like Rich [...]

  • You are good at running business Yaro. It’s the first time I read this post since I am a new reader.

    Good to see that better edit is going well. I’ve looked at the evolution of the site since 2001, and it seems that it came back to its first state?

    I like this site’s template, it’s the best.

  • [...] done. Your back end products better be pretty good if you are charging a premium price for them. Perceived value can only carry you so far – you have to offer real value as well – which is generally easier when [...]

  • [...] written extensively about perceived value and when it comes to pricing there is no more important concept, so please read over my previous [...]

  • Tim

    Now I’m thinking about initial prices of my own service. Thanks a lot for information. It will be interesting to hear more about pricing levels/discounts you experimented with. Did you try to set prices in levels like “entry”, “basic”, “pro”?

    Tim
    http://gtd-tools.com

  • Tim – I didn’t experiment with pricing levels besides offering an early bird discount. However now with a few months experience under my belt I definitely think there is a need for some different pricing points for different levels of service. I

  • Dona

    Yaro, this article is of special interest to me as I have been asked to edit some theses in the health ed area. I will offer discounted prices as I get started to see how I do and how students and faculty like my work. This could be a rewarding business on the side.
    Perhaps one day you may invite me to be on your editing team! :0)
    Dona

  • Great article
    Thanx
    I’ve set up a price which is too low for my membership site
    so now i just raise the price every price to find the “good” price

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