One of the toughest questions to answer as an entrepreneur is and always will be “what price should I charge?” If we overprice we will turn away potential clients, but so too is the same true about underpricing. It is a fine line that we walk when we try to determine our price and many times it may be a system of trial and error before we determine just the right price. The biggest factor in determining our price is “what is the client willing to pay”, but the answer to this is much harder to determine than you realize. So too must we consider is how the way our client will conceive us based on our price even before they take a second look at what we are offering. This term is called the “psychology of pricing”.

There is a ton of information on the internet just waiting to be found on the psychology of pricing. When I googled the term “pricing psychology” there was over 460,000 sites just waiting for me to visit. These sites all pretty much said the same thing … perception is key to setting your price. Even though you only save one penny, $9.99 will always seem like a much better price than $10.00.

However, let’s keep in mind that psychology also covers other areas as well besides just saving a penny, there are a number of other psychological factors to keep in mind in setting your price:

1. What is the competition charging?

When setting your price you want to be in-line with the average that is being charged for your services/products by your competition. If your price is one of the lowest, people will wonder if you “know your stuff” or have an inferior product/service. If your price is on the higher end of the scale, people will automatically expect you to have a lot of added value for them to agree to pay that price.

2. What is your USP (unique selling proposition) or the added value?

When people are determining whether to purchase from you, they want to know that there is a good reason to go with you. A justification, if you will, for when they tell their friends about you. If you can provide them with a good reason to purchase from you, price will be secondary. If you have a specialized skill that you can provide you are more likely to be able to charge more than someone that the client feels provides a service they can “handle” on their own.

3. What’s in it for me?

Many people buy with pain in mind. They are looking for the underlying value. When you can sell them on the product or service based on appealing to solving a pain, again price will be secondary. For example, as a service provider, if your client had to do the task on their own, what would their investment of both time and money be? How do you make their life easier? With a product, why must your client have that product and what great benefit will they receive?

Sometimes it can take several attempts to find the “right” price. Don’t be afraid to “test the waters” and then try something new. Another approach is to ask your potential clients what they see as the value in the service or product you are providing. Many times we are so close to the situation that we undervalue ourselves, our services and our products.