In: Business 101, Money Talk, Selling,
When you visit a theme park, you buy a ticket to get in. Maybe it’s $50, maybe it’s $100, maybe it’s even more. (If that’s the case, there better damn well be a unicorn-drawn carriage.)
Expensive, but you justify it as the cost of spending a day in the sunshine, roaming around in circles, staring at other people’s pants and thinking horrible things about the human race.
So off you go, with your sunglasses and your annoyingly optimistic attitude (MY FAVORITE WAY TO ROLL), and then…you arrive.
“That’ll be twenty-five dollars to park.”
Ooooohhhhh, hidden cost number one.
“That’ll be fourteen dollars for a wine.”
“That’ll be thirty dollars for a cheese plate.”
“That’ll be eighty four dollars for that sweet Japanese kimono that you won’t really wear but really wanna be the kind of person who wears that kind of shit so you buy it anyway.”
By the end of the day, you haven’t just spent $284 for two people to enter—you’ve spent $600.
But wouldn’t it be easier / nicer / better if a theme park charged one all-inclusive price? Shouldn’t they just include the parking in the price? Shouldn’t they set up buffet stations in an effort to not gouge every single customer just because they can? SHOULDN’T THEY, SHOULDN’T THEY, SHOULDN’T THEY?
Sure. But who’s going to spend $600 for a ticket to a theme park?
The sticker shock is too difficult for most people to rationalize. (Unless it comes with a room at the Ritz Carlton.) It’s much easier for them to sell you on the backend, once you’ve arrived. They still make the $600—they just ask for it differently.
How many services have you considered offering that try to include everything? How many things are you thinking about packaging all together? How many times have you thought it would just be easier on everybody to ask for one lump sum—and include the parking, too?
When you do it this way, you run two risks: The first being that you aren’t making any sales at all, because you’re selling $600 tickets to a theme park. (Even if the cost is justified.) The second is that you go the opposite way and grossly underprice yourself, because you’re conscious that the sticker shock is too high—and therefore you’re only earning half of what you should be.
Neither scenario is desirable. We need to earn great money while simultaneously making it palatable for others to give us that money in return. You could build the next Egyptian pyramids, for all anybody cares, but if no one is willing to pay five trillion dollars for your creation, you’ll be out of business. Similarly, if you price it too low, even if people are buying you won’t be earning the kind of profit that the project merits—and that you need to justify your time—and you’ll still go out of business.
Remember: sales don’t equal profit.
Profit equals profit.
And creating as much value as you can, at a price the market will bear, in the way it will bear it, is what doing good business is.
Charging $600 per customer, and earning $600 per customer, are two entirely different things.