The 3Ps, Price, Promise, and Performance, help you create lasting relationships with clients. They’re all interconnected. First, your client buys your promise, “We promise that we’re going to do a great job and get you better performance.”
Once you have real performance data, the idea of price comes into play. For example, if you’re able to increase your client’s revenue by $10,000/month, and you’re charging $8,000/month, the net benefit is $2,000/month. Is it worth spending $8,000 to get $2,000? Probably not. That’s where performance and price might be counter indicative. The performance might be okay, but the price for that performance might be too high.
When you’re setting your pricing, you have to measure how big your promise is going to be. If you’re thinking well, “I can increase business by 40% over the next 6 months.” That’s cool. What is it worth to get 40% more business? You have to look at the size of the business, the impact of that 40% revenue increase, and how that relates to your price because your price has to have a clear relationship to your performance.
Pricing doesn’t have much to do with how much it costs you to deliver the service. The limit on your pricing is in the performance that you, or your client, can drive because the economic investment into your price needs to generate a larger economic benefit from the performance.
Everything has to tie back to your promise. If you’re promising 100% revenue increase, and you’re only generating a 40% revenue increase, you aren’t keeping your promise. Even if your pricing makes that 40% increase really profitable, it doesn’t connect to that 100% revenue increase that you promised, and it’s going to fall apart because you didn’t deliver as you vowed to.
Price, Performance, and Promise are essentially a circle. They all connect together, and they’re sort of inextricable. It’s like a snake biting its own tail. Your thinking has to be this, “If I make a promise, it has to be big enough to justify the price that I’m asking for, and then the performance has to match the promise or be directionally moving towards the promise.”
Promise really is the thing that allows you to set your pricing, and then performance allows you to continue to receive that pricing over time. Price, Performance, and Promise are just three looks at the same thing. They’re three looks at how much value you bring to your client during your relationship.