You've taken the plunge and opened up for business performing mentalism. What drove you to go out on your own no longer matters. You could have been laid off work or wanting to be your own boss, but right now your sitting there and your potential client drops the bomb on you!
“So how much is this going to cost me?”
Your heart starts racing and you feel your pulse quicken and temperature rise. Thoughts start popping in your head like:
What if I charge to much? Will I lose this deal?
I need this...I've got bills to pay!
So you stall by telling the prospect that you will come back to them with a proposal. With a silent sigh of relief you hear the response, “Okay, I look forward to seeing what you propose.”
“So how much is this going to cost me?”
Your heart starts racing and you feel your pulse quicken and temperature rise. Thoughts start popping in your head like:
What if I charge to much? Will I lose this deal?
I need this...I've got bills to pay!
So you stall by telling the prospect that you will come back to them with a proposal. With a silent sigh of relief you hear the response, “Okay, I look forward to seeing what you propose.”
Later that night, you contact a friend, a magician or an accountant it doesn't really matter, but they tell you about a pricing concept called Cost Plus Pricing. Basically, it is a pricing model which sums up all of your expenses and calculates out your break even cost per hour and then you add in a profit margin, usually as a percentage of the cost.
You've now got a price and go back with your proposal and win the GIG. Success! You've got your first sale and you feel like a million bucks, but the seeds of doubt start creeping in. If you keep at it, you will make money but no where near the big dollars you dreamed about. Plus, you constantly have to keep getting GIGS. Now more thoughts pop in:
What happens if I don't win the deal? I'll have to lower my price to be competitive.
It's okay, I'm just starting out and over time I'll get mine and become successful.
You keep at it and are getting experience and starting to get a client referrals. These referrals are expecting similar prices and deals like their friends got. As time passes you start feeling frustration because you don't seem to be making the cash flow you wanted. You're getting GIGs and barely scraping by trying to grab as many shows as possible.
You've now got a price and go back with your proposal and win the GIG. Success! You've got your first sale and you feel like a million bucks, but the seeds of doubt start creeping in. If you keep at it, you will make money but no where near the big dollars you dreamed about. Plus, you constantly have to keep getting GIGS. Now more thoughts pop in:
What happens if I don't win the deal? I'll have to lower my price to be competitive.
It's okay, I'm just starting out and over time I'll get mine and become successful.
You keep at it and are getting experience and starting to get a client referrals. These referrals are expecting similar prices and deals like their friends got. As time passes you start feeling frustration because you don't seem to be making the cash flow you wanted. You're getting GIGs and barely scraping by trying to grab as many shows as possible.
Getting Started with Value Based Pricing
Right now you sit there reading my words, wondering why you are struggling to make ends meet. Let me transform your thinking and your business model.
Don't get me wrong, I don't think there is anything inherently wrong with the cost plus model. It's great for someone without any experience or just starting. But the moment you've got some experience and start developing that client base, you will need to shift gears to a better way.
That way is a value focused pricing model.
You see clients shouldn't have to pay for your lifestyle. For example, 2 mentalists, with two dramatically different lifestyles. One is as frugal as they come and the other lives the life of luxury. If they both use the cost plus approach, they will have dramatically different prices.
Furthermore, the cost plus model has a built in limitation: the number of hours you can work. What happens is as you are chasing GIGs, actually billable hours, you will eventually burn out and your show suffers. Additionally, it sets a stage of confrontation between you and your client. You are now an expense in their mind. No one wants another bill!
I can hear some grumbling they are not billing hours, but selling entertainment.
So let me ask, “When you meet with the prospect, one of the first things you discuss is price, right?”
Most likely, you will respond yes, because that's one of the first things they ask. They want to know your rate or how much it is going to cost. So, you follow up with your hourly rate or give them a rough estimate.
You see when you quote price first with clients, you put your needs ahead of theirs. What do clients get when you quote them a price? A show? No they don't! They want value that solves a need. And the only way to provide them the proper price for the solution is to discuss what they are trying to achieve. Plus, quoting first based on the hours of work, you are selling your hours NOT the value of your work.
Don't get me wrong, I don't think there is anything inherently wrong with the cost plus model. It's great for someone without any experience or just starting. But the moment you've got some experience and start developing that client base, you will need to shift gears to a better way.
That way is a value focused pricing model.
You see clients shouldn't have to pay for your lifestyle. For example, 2 mentalists, with two dramatically different lifestyles. One is as frugal as they come and the other lives the life of luxury. If they both use the cost plus approach, they will have dramatically different prices.
Furthermore, the cost plus model has a built in limitation: the number of hours you can work. What happens is as you are chasing GIGs, actually billable hours, you will eventually burn out and your show suffers. Additionally, it sets a stage of confrontation between you and your client. You are now an expense in their mind. No one wants another bill!
I can hear some grumbling they are not billing hours, but selling entertainment.
So let me ask, “When you meet with the prospect, one of the first things you discuss is price, right?”
Most likely, you will respond yes, because that's one of the first things they ask. They want to know your rate or how much it is going to cost. So, you follow up with your hourly rate or give them a rough estimate.
You see when you quote price first with clients, you put your needs ahead of theirs. What do clients get when you quote them a price? A show? No they don't! They want value that solves a need. And the only way to provide them the proper price for the solution is to discuss what they are trying to achieve. Plus, quoting first based on the hours of work, you are selling your hours NOT the value of your work.
The Value Based Pricing Model for Mentalism
So before you quote a price, explore the clients needs. This initial conversation is the best thing you can do for the client and sets the foundation for value pricing.
The Value Based Pricing Model Steps
Now, don't worry about price anymore. Let the other performers fight over price. Let other performers think you have the highest price per hour. Let them try and fight you on price. They will fail because you are not selling price. You are selling value. They won't understand.
Don't worry about competition either. Your value is different from mine or any another mentalist's. Even though we are all similar, our clients are not and our services are not identical. You have your distinct style to providing solutions to your clients.
A value focused approach will help you build stronger relationships with your clients and find you more profitable clients as well. Stay tuned my next post will explain just how and show you how to find your value proposition.
The Value Based Pricing Model Steps
- Probe the client for information. Find the pain, the goals, the real purpose of why they reached out to you. Get them to define what success looks like. Have them make the intangible real.
- Set your prices based on what you find out.
- Have your proposal outline the scope of your service and include options, each with a value and price.
Now, don't worry about price anymore. Let the other performers fight over price. Let other performers think you have the highest price per hour. Let them try and fight you on price. They will fail because you are not selling price. You are selling value. They won't understand.
Don't worry about competition either. Your value is different from mine or any another mentalist's. Even though we are all similar, our clients are not and our services are not identical. You have your distinct style to providing solutions to your clients.
A value focused approach will help you build stronger relationships with your clients and find you more profitable clients as well. Stay tuned my next post will explain just how and show you how to find your value proposition.
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