June 1, 2018

Max Price Formula: The First Needle

A few days ago, I presented you with the Max Price Formula which describes what I see as the the three key parameters that dictate the maximum price a buyer is willing to pay for a product or service:


To be clear, I see this more as a useful mental model more than a precise mathematical calculation. I don’t expect anyone to attach units and values to these three subjective and intangible pricing considerations and come out with an exact dollar amount. It’s just meant to help illustrate the three needles that you can try to move if you want to increase your prices.

Today I’m going to talk about the first needle:


Of the three, buying power is probably the easiest to adjust in your favor. You can’t easily increase the amount of personal wealth or access to capital or annual budget of a particular buyer, but you certainly can orient your marketing activities to attract buyers who are more likely to have a lot of buying power.

For example, let’s say you make formal wear for dogs. You’d probably be able to charge more for a dog tuxedo in Beverly Hills than you would in Detroit.

If you researched dog owners in Beverly Hills vs those in Detroit, I’d guess that in general the two groups would:

I realize that these are broad generalizations and I’m not making a judgment call on one being better than the other. I’m just saying that it would be pretty hard to speak to both of these groups with the same marketing.

So if you want to appeal to a group with more buying power, it would seem sensible to target people who can afford to live in Beverly Hills, wear Kiton jeans, own diamond tiaras, and carry teacup chihuahuas around in their Louis Vuitton bags.

But you don’t make formal wear for dogs, do you? You offer professional services. Your buyers are probably folks who are running or working at a business.

That’s fine... the same principle applies.

Some business people have more buying power than others. You can probably make some broad generalizations that would help you focus your marketing toward the higher end of your market. Here are a few questions to get you thinking:

The bottom line is that appealing to people who have control over more money is a needle that you can try to move to increase your prices.

Tomorrow, we’ll look at the second needle:


Stay tuned!