How To Set Your Prices To Make Million Dollars In A Year

Let me ask you a question. How much do you want to make this year? Not a vague number, a specific number. Because here's what I've learned after 20 years of building businesses. Most people set their prices based on what feels comfortable to charge or what they think the market will accept. Or they base their prices on what the competition's charging and then they wonder why the revenue number at the end of the year is nowhere near what they actually wanted. The problem is not how much you're hustling, the problems that even your product the problem is your pricing strategy. And that's what today's episode's all about. How to price your products so that you do get the revenue that you're looking for. Today, I'm gonna give you the exact framework I've used over the years to set all the prices to my products and services. And you'll be able to set prices with intentionality, meaning you will get you the number that you want. Not the number that feels safe, the revenue number that you actually said 30 seconds ago. Let's get into it so we get you to your actual goal. How much money you actually want to make this year? (upbeat music) Welcome back to the $100 MBA show. I'm your host Omar Zenhome, where I deliver practical business lessons three times a week, Monday, Wednesday and Friday to help you start grow and scale your business. I got a quick favorite ask. If this show has helped you in any way, leave me a quick review. You could do so wherever you listen to podcasts. This helps me and my team reach even more people who need the same no-fluff practical business advice that you're getting from the show. It only takes a few seconds, but it makes a huge difference. Thanks for being a part of our journey to help others on their journey. Let's start with step one. And we're gonna work backwards from the number you want. Most people set prices, then they calculate how much they're gonna make. No, you gotta do the opposite. You gotta start with the number you actually want to make at the end of the year. This is what I mean by working backwards. You start with the goal in mind. I wanna make a million dollars in revenue this year. Okay, great. How will you make a million dollars? Let's roll that back. Let's figure out how we can set our prices accordingly so that we can reach to this goal. Here's the exact process. Pick the annual revenue number you wanna hit. Let's say it's one million dollars, like I just mentioned. Now, ask yourself, how many customers do I need at my current price to hit that number? If you charge $1,000 per customer, you will need 1,000 customers. If you charge $10,000 per customer, you only need 100 customers. Guess what? If you charge $100,000 per customer, you only need 10 customers. Same revenue, completely different businesses. The higher your price, the fewer customers you need. The fewer customers that you have means less operational complexity, less support burden, less team required and more margins to invest back into your business. And also some margin for you to keep some money in your pocket. Now, the second question you wanna ask, and this is often the question no one asks 'cause they just think, well, I can't sell expensive products. Here's the question, how do I make what I'm selling valuable enough to charge that price? That's the right question. Not what can I get away with charging, okay? What do I need to deliver to justify this price? A lot of people come to me and they say, hey, Omar, I know you said to raise prices, but I don't know if anybody's gonna buy if I raise prices. Well, what if you raise the value? If you increase what you are going to provide to the customer, you can raise prices. Again, the question is, what do I need to deliver to justify this price? I mentioned my buddy Patrick Campbell who was the founder of Profitwell, which was the company that he sold for over $200 million. And the whole business was pricing. He was the pricing expert, he's still the pricing expert on the internet. People come to him to figure out how to set their prices. And I worked with him when we were working on Webinar Ninja in our prices with our software company. He taught me something that changed how I think about pricing forever. And here it is, it's very simple. People pay more if you give them more of what they want. People will give you more money if you give them more of what they want. Think about this from a practical sense. Think about business class on an airplane. There are two lessons in this example, okay? One, sometimes business class is like five times as much as economy. The plane is the same, the destination is the same, the pilot is the same, but the experience is completely different. People will pay for that difference, not everyone. So the second lesson is not everybody thinks like you. Okay, maybe you won't pay for business class, maybe you won't pay for something that is marginally better than something else. You won't go for that, but there are plenty of other people that will. Too many people will set their prices based on what they would pay for rather than what other people would pay for. The other thing, if you remember, is that money and prices are relative. Think about it. You buying something that's $5. Let's say, for example, you buy a sandwich from Subway for $5. It's nothing for you. You don't even think about it. It's a purchase that doesn't require much thought, okay? But $5 for somebody that is in rural India could be their monthly salary, okay? That is a lot of money for them. So it's relative. Just like you seem rich to them, there are people that are richer than you or they have more disposable income that are willing to pay for a business class flight without thinking about it. The other thing I learned from Patrick was that pricing is not something that you set and forget. Pricing is a constant experiment that needs to be tested and refined until you find what you can do to optimize the revenue and profit in your business. Again, the whole point of these experimentations that you're doing with pricing is to find out how you can make the most revenue and profit. Not just revenue, how much money you're gonna keep. Let me give you an example. Mazda, right? They sell cars. Mazda sells millions of cars a year worldwide. They sell a lot of cars to a lot of people. But Porsche, on the other hand, sells a fraction of what Mazda sells. They have less customers, but they make 10 times as much. They're a multi-billion dollar company. When it comes to car manufacturers, they're winning the game because they're making more profit. They're making more revenue than Mazda. Despite the fact they have less customers, despite the fact they have less sales. So how can we apply this to you? I wanna even exercise that you could do today. Write down literally with a pen and paper, write down the annual revenue you wanna make. Write down your goal. Now divide it with your current price. Look at the number of customers that are required. It might shock you, okay? Now ask yourself honestly, is there a higher price point that would get to the same place, the same revenue that you're looking for with fewer customers? What kind of margins are they? What kind of profit are you making? What do you need to add to improve or justify that price? So say, for example, you realize, oh man, I'm gonna need 3,000 customers at my current price point. Well, what if you double your prices or triple your prices or quadrupled your prices? That's the way you were forced. You had to 10X your prices. I know this sounds insane. Like you sell a product of $100, but now you gotta sell for $1,000, okay? What would you have to change about that product? What would you have to offer to your customers to justify that new price? This is an incredible thought experiment that I've done over and over again. And I realize, actually, you don't have to do much. You actually have to just continue to add value to the customer, show the value to the customer, and then you can justify the price. 'Cause the second part is just as important, the showing the value, because you can have a very valuable product and offer, but if your customers don't know that value, they don't understand how the price makes sense. Step two, stop selling to price sensitive customers. Please, please, for the love of God, stop selling to people that don't have money. People that don't have money are the worst customers in the world. And I am one of them in the past, right? I didn't have money for a very long time in my life, and I was incredibly price sensitive. It was on my fault, and it had much money. But as a business, when you price your products too low, you are attracting these types of customers. Price sensitive customers, nothing wrong with them. I'm sure they're nice people, but they make very difficult customers. Let me get very specific about what I'm talking about here. I'm talking about people who choose you primarily because you were the cheapest option. When people are shopping based on price alone, you are on a losing battle, because when it comes to price, there is a floor. Meaning, at some point, you can't go lower than zero. You can't give away the product for free. You can't pay them to take your product. So there's really no way to go beyond that. But with higher prices, it's up to infinity. Have you been to a Louis Vuitton store? Have you seen the prices of the most simplest products, like a wallet for $7,000? The point here is that you don't want to compete in price because you will lose this battle. Price sensitive customers are the most demanding, most difficult, most time consuming customers in any business. They question every invoice. They push back on every scope change. They are trying to nickel and dime you for every little thing. They compare you to cheaper alternatives and say, hey, if you don't lower your price, I'm going to go to the competitor. I spoke about this before, but these customers, they'll drain you. They'll drain your energy, they'll drain your motivation. They're going to make it very difficult for you to get up in the morning. I've experienced this directly when I was building my web agency. When I moved from Dubai all the way to New York, I left my teaching career and I started my whole new life as a full-time entrepreneur. I started out with $1,500 per website. I've mentioned this a million times, but I'm going to say it again for this example, but $1,500 per website. These clients were the worst. But once I changed my prices, once I started to increase my prices, I doubled them and then I nearly tripled them. And then I bet you I got to the five. thousand dollars per website price point and that changed everything the clients were easy to work with they trusted my Process they paid on time their ford other like-minded not-so-price sensitive customers like themselves and here's the killer thing This is the kicker. This is a thing that makes it so crazy. I was not doing anything different same work Right, I was creating the same types of websites But it was a completely different experience and I was making more money It's like I was abusing myself. I created this problem for myself by pricing my products too low So here's an exercise I want you to take on so you can implement this right away Look at your current customer base and identify your best customers and then the ones who pay you well the post ones that refer good people to you You get good clients from them figure out who they are where they like to visit online What are the other products they consume what other types of problems they have what are all these customers having common You basically want to do a deep research on who these people are why because you want to find People just like them you want more of these people these are the people you want to grow with now I guarantee you that when you look at your best customers the ones that you love they are people that paid you the most Maybe they bought several products from you They're probably their best customers because they are already sold on what you have to offer They don't need convincing so what's stopping you now from raising prices and remember you can always change your price If something happens and people don't buy or your craziest nightmare happens where your business goes out of business Because you change your prices then you can always change it and I'm telling you right now in the last 20 years of doing business every time I've ever increased my prices that never happens right the exact opposite happens my business grows and I make more money But I'm telling you like the mentality you have to have is that I can always change this is not like a permanent decision that I can't change Step three, I want you to price for commitment and not just revenue Here is a pricing principle that I've applied to our program the hundred dollar MBA that shaped our entire business You want a price that is set so that you can get people to commit to your ideas commit to your business commit to being a long-term customer Because commitment is a filter when I price the product for a hundred dollars a month It's done intentionally why because I'm not just picking a number out of thin air I'm choosing a price that attracts the people who are serious who are willing to put some skin in the game A hundred dollars a month is enough skin in the game that people who join are committed to implementing what they learn and Getting results I want results so I can get to Simone's so I can share those on my website so that I can get more customers I don't want to have others. I don't want people to sign up and never log in I want people that are actually gonna do this and if they don't pay enough money for them to feel like Oh, I don't want to waste the money I spent I need to log in I need to do the materials I need to follow through with what I learn then I'm going to have customers that just are worthless to me beyond the money You want customers are gonna be evangelists they can tell other people they're gonna get results They're gonna give you just money also they're gonna give you referrals at the same time a hundred dollars a month is not so expensive That someone who's just starting out can afford it. It's not prohibitive right? It's a price of a nice dinner out and if somebody's not willing to part away with one nice dinner out A month so they can change their business their life forever Then they're really not meant for my program. So this is what you got to think about pricing Who do you want to attract? How do you want them to commit through pricing and you want to balance and I'll give you another example I used to run these weekly events workshops when I was living in New York City and I was experimenting with price and what I found is That any price for any kind of event and this event was the whole point of the event It was I would give it workshop and then at the end of the workshop I would share with them some of my services like my website services and helping them build their brand and The whole point is they get them to become a customer But whenever I made the event free the show up rate was a whole lot less because it's easy to cancel on free But even when I charged five dollars just five dollars just a ticket price the attendance rate skyrocketed like 92% of the people that signed up would go On the free side if somebody signed up and it was a free event I would have show rates of closer to 50 to 55% so it's a massive difference So even experimenting with free versus paid is something that you want to look at I want you to ask yourself about every product you sell Does this price attract the customer actually want to serve do I want to spend time with these people because by the way Your customers are the people that you're going to spend the most time with people that you're going to serve every single day or Does it attract someone who I will not want to work with right who I will blame Them whenever I'm having a bad day right who do you complain about when you're having a bad day often sometimes it's bad customers And those are people you want to kind of fire you want to fire bad customers I want to give a shout out to Michael Port who wrote this book called book yourself solid I read this book early on in my entrepreneurial career I then got to meet him at a dinner one day and then we became fast friends and we went on holidays together He let me spend time a weekend on his yacht, which was crazy I couldn't believe it by the way never by yacht. It's a lot of headache, but the point is that Michael told me this concept called the red Velvet rope policy You know like at a nightclub or a VIP event They have the red velvet rope that they open and close for the VIPs Well, you want to do that with your customers You want only the best of the best to come through the velvet rope You want to prune your customers and one of the best ways to do this is to do what I mentioned earlier is to raise prices Once you raise prices, they're going to just kind of exclude themselves And they're not even going to ask to get through the velvet rope So as an exercise, I want you to review the price of your core offer in your business Is it high enough to filter out and make sure you only have committed customers Or is it low enough to make sure that your customers that you want to attract? It's not prohibitive. They actually can afford it and it's not too much of a stretch If someone pays your price and does not get a result Is the price you set part of the reason why they didn't get results? What do I even buy that? Well a lot of people for example sell online courses and they sell these courses at a pretty low price And if they buy the course and it wasn't that expensive They may not be too bothered to actually want to implement and actually learn and go through the whole course And complete it So but what if that online course was $5,000 and they bought it You bet they're going to be like I'm going to watch every single second of every single video Do every single exercise ask as many questions I can in the community And implement everything exactly the way the teacher told me Because it's $5,000 you know I could have won on holiday with that money So your price has a lot to do with the results your customers get I'm telling you right now you could actually think of own examples in your life When you paid for something and you're like I'm going to get the most out of this right you like an expensive dinner For example you made sure that you wiped your plate with all the bread and made sure all the sauces Taken care of right the point here is is that you want to get the most out of your dollar But you have to actually have a price that is worth actually wanting to get the most Hey, I hope this framework is already showing you Where your pricing is costing you money and how you can start making more of it The next step I want you to take is to subscribe to the show We have an upcoming episode that I don't want you to miss It's called how to motivate yourself to get things done This is one of the most common questions I get asked Omar how do you motivate yourself to do what you do every day To be consistent with the podcast to build your businesses to manage your team Sometimes I just don't feel like doing it Well my answer is on that episode And my answer might surprise you because I do believe the answer is going to actually give you An answer you may not expect maybe an answer that will make you question if you should be an entrepreneur in the first place So hit subscribe because I don't want you to miss it because it's the honest truth And I can't wait to share with you Step four raise your prices without losing your customers I know what is happening in your head right now I know right now you're thinking Omar this all makes a lot of sense And maybe this is good in theory but in practice if I raise my prices I'm going to lose my customers Let me give you a strategy that removes almost all the risk Right and I've learned the strategy from people like Patrick and others And this is one of the things that I want to pass on to as a gift Because it took me a long time and a lot of heartache and a lot of lost money Through this process to learn this so here we go The annual price increases what do I mean by that I want you to increase your prices every single year What how does that work? Well here's how it works I want you to pick a date in the future And I think a nice number a nice date is January 1st The beginning of the year so January 1st of 2027 You're going to increase your prices now guess what? This is going to become your new sale You're going to communicate to your audience clearly In advance that prices are going up on January 1st Now many businesses what they do is they make this announcement during like Black Friday During the holidays because it gives like a window for customers to buy before the price goes up So here's how it plays out and I've done this several times And it's an incredible strategy and this is what I'm showing with you You communicate to your audience clearly that the price will go up on January 1st for example And you say that this is the last time that the prices will ever be this low Because every year they go up this is not a threat This is not a pressure tactic It's just a fair warning and actually customers appreciate it Because you're going to have a lot of people on your email list and that follow on social That have been interested in what you have to offer But haven't really had a good enough reason to buy now Okay here's a good enough reason why Because people don't like missing out you've heard a FOMO right for your missing out People don't like missing out on a deep People don't want to regret the fact that they waited and now they have a reason to buy now because the price will go up. And this is what happens every single time. Every single time. A wave of people who have been sitting on the fence by before the deadline, before January 1st, or whatever your deadline is, you start getting floods of customers because existing customers want to lock in their current price because they don't want to pay more later. So for example, let's say, and what we did today is what we did, we had monthly and annual plans. So we would say, hey, we're increasing our prices from January 1st. So here's fair warning. This is the lowest prices ever going to be. All our customers, I shouldn't say all, but a good portion of our customers that were regular monthly customers who maybe have been paying us monthly for six, seven, eight months in a row. We tell them, hey, prices are growing up in January 1st. What do they do? They buy the annual because we're like, hey, I want to lock in this low price now because I want to pay a lower price for the rest of the year. But here's the thing, when January arrives, the price must go up. Otherwise, I was going to believe you, right? You got to actually honor your word. And guess what? I've never seen more customers leave than the actual buy. I'd never see customers get to the point where they're like, okay, I'm not buying from anymore because the price went up. You gave them fair warning. They understand that things go up, prices go up, the economy changes. And one of the things I like to do when I'm increasing prices, this is one of the things I would actually advise you to do is you tell them why prices are going up. Well, in the last year, we improved our product. We added more value. We had more features. We're giving you more information. We're giving you more support. And because of that, the value's gone up. We're increasing the prices. But you can get the current price if you buy before January 1st, the net result is almost always higher revenue with slightly smaller but significant more committed customer base. What does this mean? You might get less customers, but you're making more money in total because you are increasing your prices and that spread across all your customers. That means more revenue. For reoccurring subscriptions, this is an additional strategy I want to give you that I learned from Patrick Campbell is something called grand fathering. Let's say for example, somebody's paying an annual price or a monthly price. And maybe they signed up for your product years ago and they're loyal and they're like, oh man, you're increasing prices. Let's say you don't want to disrupt them. You can give them something called a grand fathering discount. This means that let's say January 1st, your prices are growing up, but that only applies to new customers for reoccurring customers. You can give them a six months grace period. Say, hey, we're going to extend your current price for six months because we appreciate your loyalty and this new price is only for new customers. But after six months, you'll be grandfathered and then you're going to move into the new pricing. Why does this work? Well, it feels fair. I don't know who's been with you for a while. They're going to be like, okay, fair enough. This person's got a razor prices. I understand business, but they're at least acknowledging the fact that I've been with them for some time and I've been paying them all this money all these years. And they're going to give me an extension of the current price. I find that when I do this grandfathering technique, it dramatically reduces churn during a price increase. Churn is the number of customers that leave you. So you have some loyal customers. You want to make sure that they remain loyal. So show your loyalty by giving them something a little extra like this grandfathering discount. Now, both strategies accomplish the same thing. They make the price increase feel like something being done for the customer. Okay. It's not to them. You're saying, hey, and again, you're justifying the value. You're saying, hey, we're increasing the value or we have increased the value. And that's why the prices are going up. So as an exercise, I want you to pick a date where you're going to increase your prices. And by the way, this is one of the most brilliant strategies I've ever used in pricing because it's seen as a sale. People see this as some sort of promotion, but all you're doing is increasing your prices. You're not discounting your price. You're not losing money or profit. So I want you to pick a date, make the announcement to your customers and say, hey, on this day, my prices are going up. You could just email them and you want to do this a few times. So that just case they missed the email. And you want to make sure it's clear that the last time they can lock in your current price is X date, whatever that date might be. You're going to watch what happens and your sales will increase dramatically in that window. Now what I found is that you'll get a bunch of sales when you make the announcement, but you're also going to get most of your sales right before the deadline. People love to procrastinate. So this is important. You need to remind them of this deadline as the deadline approaches. So let's say a week out, you know, five days out, three days out, 24 hours to go last 10 hours, last five hours before the price goes off. I'm telling you, most of my sales, when I do this happen the last day, even the last few hours, I'm talking about like 60, 70% of all the sales we make happen there. And I say we make, I'm talking about the sales from this quote unquote promotion. Step five, treat pricing as a permanent experiment experiments that keep going on. This is just going to be a part of your business now. The reason why you got to keep experimenting is because the world doesn't stay the same. The market constantly changes. The economy changes. The customers change. There needs change. So you need to change with it. Your product also improves. Your brand grows, your competition starts to shift. What they do also matters. And the price that was right for your business six months ago, may not be the price that optimizes your business and opposites the revenue in your business today. You want to make sure you're always testing to find out what's working and if it's still working, let me get very specific. You want to test different price points. You want to test different packaging. What you include in your offer, what bonuses, what features. You want to test different offer structures, meaning when I actually offer this, if there are new customer, if there are an old customer, how will I structure this offer in terms of what's not only included, but how the sequences of the actual offer is, I say this then second, I say that I'm talking about your sales page or even your actual pitch when you're doing it live in person. You want to measure all of this so that you can understand what works and what doesn't. And what I advise you to do is don't test many things at once. Test one thing at a time. And this is why I mean you're constantly testing. So you may want to test the price point for a month and then after a month, you could price different packaging. You want to do it in isolation so you can actually have clean results. So what are you measuring? Well, you want to measure conversion rate, like how many people actually when they're made the offer took on the offer, right? They actually bought how much money are you making per customer? How much lifetime value are you getting per customer? How much money is a customer spending on average with you? How much margin are you making on each offer? This type of information is going to allow you to know which prices, which changes are actually giving you the most benefit. What Patrick Campbell taught me was really that pricing optimization is one of the biggest and highest return activities that you can do for your business. It's the strongest lever that you can pull because it affects every single transaction every single customer because a 10% price increase is essentially a 10% revenue increase with no additional cost. No new customers, no new marketing, no new products. That is the leverage that most businesses leave on the table because they set their price once and they forget about it. They get comfortable with it and they never revisit it. And the only reason why they do this is because they have this fear that if they raise their prices even a little, the customers will run away. And this is unfounded and hasn't been proven in my experience. Or at least the customers you want won't leave because we don't want let them leave. You want them to run away because you want to serve a higher level customer. So as an experience, as an experiment, I should say or as an exercise you should do. I want you to schedule a pricing review every quarter. Yes, every three months, you want to look at your pricing. Look at the conversion rate. Look at the revenue per customer. Look at the margins you're making with each product you're selling. Ask one question with every review. Is there a version of this offer at a higher price that I can offer to my customer that they're willing to pay for? What kind of value do any to add? How can I repackage this so that I can increase the price? That is a test. And you only have to do this once every three months. Again, this is not something I do every day. This is something that you are just committing to so that there is some iteration that's happening so you can get some information to learn what's working and what's not. Now listen, you might listen to this episode and just forget to do this. Okay. If you don't put in your calendar, it's probably not going to happen. So plug it into your calendar right now. What's three months from now or do it tomorrow and then schedule one three months from now. So that way you know that you'll be reminded of this importance. Maybe you can put the link of this episode in that calendar event. So they can re-list into this episode or re-watch this episode and remind yourself of the importance of this. So make sure you follow through when you learn something because that's when you get the value when you actually implement. So there you have it. A complete pricing framework to set your prices to make what you want to make, whether that's a million dollars or more. You want to work backwards from the number that you want and how many customers are you going to need to get at what price point to get you that number. That's really what you need to do. Stop trying to justify prices and have the goal in mind and then work backwards. Stop selling to price sensitive customers. Please, it's going to break you. Okay. It's going to really make it hard for you to have a business. You want higher prices to attract better clients and more margin and less headache. That's what higher prices gets you. You want a price for commitment and not just revenue. You want people to actually have skin in the game and feel like they actually need to follow through on what you're offering. Raise your prices without losing customers. Use the annual pricing increase strategy and the grandfathering strategy I shared with you and treat pricing as a permanent experiment. Revisit at every quarter so that you can and keep optimizing for revenue and profit. If there's anything you take away from this episode, here it is, the price you charge is a statement about the value you deliver. Whatever your price point is, it's a signal of what value you are going to offer the customer. Underpricing is not humility. It's a signal to the market that you're not fully behind. You don't fully believe in what you have to build. So stop doing that to yourself and start pricing accordingly. I want you not to charge for what you're worth. Charge for what your results are worth. Understand what the customer is going to get after consuming your product or service. What is that worth? Find the customers who understand that value and build your revenue from there. If this episode changed how you think about pricing, here's another episode I think you'll absolutely love. It's all about how I made my first million dollars. I gotta tell you that this was a significant milestone for me, but it wasn't easy. And I want to break it down for you and I do this in this episode because there are certain blockers that you are going to face in this journey. And it took me a lot of heartache and pain to figure out how to get to a million dollars on revenue each year. And I share with you what are some things to look out for? But also what are some ways you can fast track your success? Some things I discovered a little bit late in my journey. Again, that episode's called How I Made My First Million Dollars. You can check it out on whatever platform you're using to consume this episode. That episode breaks everything down for you nice and easy. Thanks so much for tuning in and being part of the $100 Reation. I'm honored that you are a part of our life and I am a part of yours by tuning into every episode and trying to improve and trying to grow your business with us, I feel like I am part of your journey and will continue to support you on your journey as you consume each episode. So check us out. If you found today's episode helpful and you want more practical business lessons to help you start grow and scale your business, the best thing you could do is subscribe to this podcast. Hit subscribe or follow on your favorite podcast, the one that you're using right now, whether it's Apple or Spotify or whatever you listen to podcasts. By hitting subscribe, you get our next episode automatically and it's the best way to support the show. It's absolutely free and it's a way for you to commit to growing your business. And now that you've subscribed, I'll check you in the next episode. (upbeat music)