Sorry for my long hiatus from posting…
I’ve been swamped (all good stuff)…
But helping you all is really my favorite thing to do, so from now on you will get a post from me each week. Some might be short, but I’m setting a goal to be consistent. Please call me out by emailing me if I dont 🙂
Last time you saw Josh Isaak perform idea extraction on me, uncover a painful area, and then dig deep to uncover exactly what the real problem was for me.
Today I’m going to cover a super important skill called price anchoring.
Price anchoring is a skill you can use to find out the value your product brings to your clients.
It can help you with understanding the viability of a product idea (in idea extraction), sales, copywriting, and with negotiations.
In this example, we’ll focus on asking questions to uncover the viability of a product since that’s where most of you guys stand right now.
In doing this, before you start price anchoring you should:
1 – Get comfortable (build rapport)
2 – Identify the pain
3 – Dig deep to identify the root of the pain (so you are not solving something too big)
Once those things are completed you’ll want to dive into that painful problem area so that you can fully understand it.
As you are listening to your prospect tell his story you will hear all of his frustrations. Take note of each of pain-point because you can use price anchoring with each one to discover more opportunity to create value with your product.
There are three basic ways I know how to price anchor. Lowering costs, increasing revenue, removing painful emotions and providing positive emotions.
In a live situation, you will usually get a super general statement back from your prospect about the pain that you’ve uncovered. I’m going to show you how to break one general statement like this down and in the process give you examples of each of the three ways to price anchor.
Cool? Let’s get started.
Here is the example we will use:
The prospect says: “We put together our reports every week and it takes a long time. Then it takes so long that we hardly ever have them ready for our weekly meetings which means we can not plan out the week. It’s really frustrating.”
When people are complaining about their frustrations, you are likely going to hear about things that cost them something. In the statement above, the most surface level frustration is “it takes a long time”. Let’s break that down first…
You say: “How are the reports put together and what are you using to do that? How many people are involved?”
Prospect: “Well first our front office staff keeps a paper form to track the numbers each day. Then each week they enter that data into excel and send it off to the our director.”
You say: “For one of your locations, how much time does your front office staff spend doing this?”
Prospect: “Oh about 2 hours”
You: “How much do you pay them an hour? And how many locations do you have?”
Prospect: “$10 dollars an hour and 6 locations”
Now you’ve broken the first part of this down into a number you can actually calculate.
$10 * 2 hours * 6 locations = $120 per week * 4 = $480
Okay so if your product can reduce that time, you can save them up to $480 per month from just this one surface level cost savings. From here you would want to find more of them. You’d ask, what does the director do with those excel sheets, etc… Costs can also come in the form of actual materials or money spent on current systems you could replace. Keep an open mind when asking these questions and don’t stop asking them. Get as deep as you can.
You can also price anchor by increasing someones revenue. Here’s an example of how the statement above could lead to that.
You: “So what do you do with these reports in your planning meeting and how do they help you?”
Prospect: “We use them to plan our week and identify areas where we need to improve.”
You: “Can you give me an example of something you saw and something you wanted to improve.”
Prospect: “Yes for example we take a look at how many no shows we have for appointments in each office. If they are too low we look at why that might be happening and dig in to see if its a few employees that could be doing a better job.”
You: “What’s wrong with having no shows?”
Prospect: “Well, when someone doesn’t show up for their appointment that leaves a gap in our schedule. We are still paying our staff for that time regardless of whether the person shows up or not. It doesn’t give us the chance to refill that spot when someone does not show up for their appointment, so we have lost the money we would have made for that visit, and our costs stay the same regardless.”
You: “How much is each visit worth to you?”
You: “If you had this info faster, how many no shows do you think you could avoid?”
Prospect: “If we could decrease our rate by even 1% it would save us 10 visits per month. I think this could easily do that for us.”
Okay so I think you can take it from here…
$120 * 10 visits = $1200 per month
I think you can imagine this can be taken a LOT farther. There are way more questions you could ask and there are so many problems and so many solutions just from that one statement… Tally them all up and keep track of them.
Relieving Painful Emotions and Providing Emotional Benefits
Never overlook the emotions related to solving a pain for someone. In some cases these can be as powerful or more powerful than the tangible things we went over before. You should mix these emotion based questions into the process.
Here’s an example of how…
You: So you said you’re reports are never ready in time so you can never actually plan your week in your planning meetings… How does that make you feel?
Prospect: “It sucks! It makes me worried that I don’t know what’s going on in my business. I know the problems that are there are costing me money and I know this could be avoided.
You: “If you always had the reports ready so you could see them at anytime, how would you feel then?”
Prospect: “I’d feel great! I’d be much more confident in where we are headed and less stressed. My staff would be less stressed too. We’d be more effective as a team and I’d spend less time worrying.
You: What would you do with that extra time?
Prospect: I’d go home and enjoy time with my wife and kids…”
Can you feel how powerful that is? It makes a way bigger impact.
Putting it all together
At the end of your conversation you can now tally all this up to further validate your idea. What I covered above is just scratching the surface. I’d probably take that conversation a lot farther than that. But for this example here’s how I’d wrap it up and try to use it to show some ROI and ask about pricing…
You: “So if you were able to save $480 per month in data entry and $1200 per month in visits. Thats $1680 per month back into your business. And you’d lose all the stress associated with this process and feel more confident about your business. Maybe have some more time to spend with your kids. What do you think a fair price would be per month for a product that did that for you?
Prospect: “Maybe $150 per month?”
Boom. Now you have an idea of what you can charge.
In doing this, don’t expect to uncover everything in one swoop. You will think of more and more questions you could have asked afterwards. Keep track of them and ask them again at a later time or ask them of someone else. Also other prospects and other businesses will take you into a completely different direction. You will be able to use that data to further segment your market and get closer even closer on your pricing. A good rule of thumb is giving at least 10X value back to your customers…
That about wraps it up. Can you see how this skill can help you in sales and negotiations too? Can’t wait to cover that in another post. It’s been really fun learning and experimenting with this.
What I LOVE about this is how honest this process is. You are working together to PROVE the ROI with your prospects. It makes them feel good about it and makes you feel good too because things are a lot more tangible and honest.
When you are finished price anchoring you can have a clear discussion about whether your product is right for them, and what a fair price would be. Then all you have to do is find out what it costs to build your software and pre-sell enough to cover your costs 🙂 More on that later…
Now if you have a friend that’s working on validating their idea, working on selling, or negotiating and you think this could help them. Or if you think people in your network would like this please forward it along and share it with them.
This process helped me a lot and I hope it can help others too.
PS – As always, leave a comment if you have questions or experiences you can share related to price anchoring…