I’ve been perusing the Internet looking for interesting articles to both write about and apply to my small business. Recently, I re-discovered an article that discussed the common pricing mistakes made by freelancers, which piqued my attention. Hey, I’m a freelancer and I price things!

Lots of entrepreneurs struggle with pricing. How much to charge? It’s clear that the right price can make all the difference – too low and you miss out on profit; too high and you miss out on sales.

Two of the five points the article made hit home and made a lot of sense to me. The foundation of anchoring prices and adding price points come from Game Theory and the original study was developed by a guy named Richard Thaler. His experiment involved beer and pointed towards a great truth for me and my business.

The experiment comprised of three tests.

1. Two beers, one was a bargain beer priced at $1.80 and the other was their regular beer priced at $2.50. Consumers purchased the regular beer 4:1.
2. Next, they introduced a “super bargain” beer at a $1.60 price point, which drastically shifted sales. Zero consumers purchased the bargain beer; instead, consumers shifted towards the $1.80 beer instead of the $2.50 beer. Not good for business.
3. Finally, they got rid of the super cheap beer and instead introduced a “superior” beer at a $3.40 price point. Sales shifted dramatically back towards the $2.50 point where 85% of consumers purchased it. In addition to the shift towards the averagely priced beer an additional 10% decided to treat themselves to the superior beer, increasing total profits.

You may have heard the quote that the best way to sell a $2000 watch is next to a $12000 watch, and it seems to hint at an overall truth. I took this into consideration and applied it to my new hosting packages.

Before

Checking my hosting clients I noticed that the majority of those who purchased my service without any consultation purchased the bronze. For the majority of my hosting clients, this is a perfectly acceptable decision; however, some of them have had to upgrade because they were not aware of the size that their finished site would be with all of the additional media on the web these days.

With consideration of the game theory and price point articles that I had read, I decided to move the plans around a bit. I slightly increased the price of the bronze package and removed a bit of the web space that was offered with the package, making it the “cheap beer.” I kept my preferable plan (the Gold Plan) with the same price and same features. I then dramatically increased the price of the Platinum Plan while also increasing the space it provided, making it the extravagant deal for those select customers who need the space. In addition to the articles, several of my clients on my Platinum plan have been tippytoeing the max space, which is another reason for the price change.

After

My plan for my hosting isn’t to gouge my customers nor is it to make a quick buck; however, I feel like my plans are now better situated to push customers towards the average plan rather than settling for the small one with little growth potential. I plan to monitor the purchases for the next several months to see if it was successful.