How Do You Know When The Price Is Right?

by Tom Ruwitch

While visiting an online forum for marketers, I came across the following:

“I am working on a marketing concept where I will be able to reach directly 20,000 people (mainly young adults and students) in a period of a month ... How much is a company willing to pay for marketing with these figures?”

One person replied, “How long is a piece of string?” Snarky but wise.
Another replied, “A company will be willing to pay somewhere between $0.00 and millions of dollars to reach your audience.” Also wise but kind of harsh.

Poor guy. He asks a simple question. Instead of the simple answers he seeks, he gets an online smackdown.

What did he do wrong? And why should you care about this guy’s problems?

If you’re like so many small-business marketers, you’ve asked similar questions as both the seller and buyer of products and services.

How much should I spend on email marketing?

What’s the appropriate marketing budget for my business?

Is the price for this list worth it?

My answer: It depends. These are not dumb questions. But they’re the wrong questions at the wrong time.

Before you ask, “How much should I spend?” (or “How much should I charge?”), you have to ask and answer some other questions. Here’s how one of the online forum folks put it:

It depends on “variables like market conditions, target audience, products (you’re) selling ... and expected ROI.”

In other words, how can you decide how much to invest unless you know how much you might make?

I’m willing to spend $3 if I expect to make $4. But I’m not willing to spend $2 if I expect to make $1.

In my business, when we discuss our services with prospects, we always start by asking, “What are you trying to accomplish?”

The goal is usually increased sales. So we ask, “How much will you make on one sale?”

Then we discuss the likelihood of generating sales: “If you invested in our products and services, do you think it’s likely you’ll make one sale? Two? Three?”

Then it’s time to ask, “Would you be willing to invest X for our service if you are confident you can make Y as a result?”

We’ve all heard the expression “what the market will bear.”

Successful businesses can’t bear to pay more for a product or service than they’ll generate in return. Businesses can bear to invest in a product or service if they’ll generate positive return.

So before you set your price as the seller, or before you decide how much you’re willing to spend as the buyer, focus on the expected outcome. Then you’ll know whether the price is right.

Tom Ruwitch is the president and founder of MarketVolt, an interactive marketing firm. For more business-building marketing resources by Tom Ruwitch, go to MarketVolt.com/resources.