All About Pricing - How Much Should You Charge?

Mid adult couple and salesman looking at digital tablet in kitchen showroom
••• Zero Creatives/Cultura/Getty Images

Let's start with some very basic assumptions. First, many sales professionals have flexibility when it comes to the pricing they propose to their prospects. This flexibility ranges from the MSRP or published manufacturer's suggested retail price and what the cost is for you or your company to buy the item(s). This cost is usually referred to as Cost of Goods, or COG for short. In between these two figures is Gross Profit.

You, as a sales professional, have to decide where along this scale of pricing to set your proposed cost that you will present to your client. Set it too low and you either leave money on the table, or you create the impression in your customer's mind that you are a "low priced" vendor. Either way, you lose.

If you price your proposed deal too high, and you run the risk of losing the deal to a more aggressively priced competitor or pricing yourself out of the customer's comfort zone.

Perceived Value

Setting your price is a complicated task, one that takes either plenty of business acumen and experience or a shot in the dark. If you lack experience, it is really important that you rely on your sales manager or tenured teammates to assist you. If you work alone, you need to think long and hard before throwing out a price to your customer. 

Your customer will determine whether your pricing is too high or too low based on how much value they see in you, your company and, most importantly, the product or service you are proposing. During the entire sales cycle, your job is to show as much value as possible. Show your client how many of their problems your solution will solve. Demonstrate how many other clients of yours experience terrific results as a result of making a buying decision. Remind your customer of their pains and why they started looking for a solution in the first place.

If you build enough value, the level at which you set your pricing will almost be a non-issue.

Market Value and Average Costs

Unless you have done such an amazing job building value in your customer's eyes, you will need to be strategic in your pricing model. If you lack the experience that could suggest the right price, you need to find other sources to research. And nothing beats the Internet for this type of research.

More than likely, there are several places that sell the same or very similar product that you sell. Check your competitor's websites to see what they are selling the product for. Make sure you are comparing apples to apples and take note of any additional value-added service that you are building into your proposal.

If you find that the average market price gives you enough gross profit, then use the market average. If, however, the market average is at or below your cost of goods, you have some more work to do.

Working for Nothing

If you earn a commission from your sales, you already know that selling at cost does little for your bank account. Selling at cost may help you retire your revenue quota and depending on your compensation plan, you may earn money on placement fees or just by hitting your quota. But, if you are paid off gross profit, selling at cost does nothing for you.

You do not work for free, and your customer shouldn't expect you to.

If the average market price gives you zero profit, go to your customer, and let them know what they will get when buying from you. Sure, your pricing may be higher than other places but, if you've done a good job and have established trust and rapport, your customer may be willing to pay a little more to keep you as their representative.