The Pain of Paying

Some of you will know that one of the many reason I encourage all bookkeepers to look towards menu pricing is something that behavioural economists call the "Pain of Paying".

This concept tells us something that many of us instinctively know.  People feel pain when they spend money.  This is because we tend to be loss averse.

We can manipulate how great we feel this pain by changing how and when we make payment.  If we pay by credit card the pain is less than if we pay by cash.  The reason for this is because we don't see the physical depletion of our cash at the time of purchase.

For each step we move away from cash the pain is lessened.  Also, when we change the time of payment we can increase, or lessen the pain felt.

I have experienced that pain this week.  We have had smart meters installed at home.  I now have a prominent display in the kitchen ticking up every time I turn a light on, or fire up the cooker.  Seeing this figure increase in real time causes real pain for me.

Dan Ariely is a well respected behavioural economist who uses the example of going for a pizza.  The medium is different, but the concept very similar.  Dan explains that a restaurant charges £10 for a pizza.  They know that the average person takes 80 bites to eat the whole pizza.

One day the owner tells diners that there is a great deal on.  For one day only he will charge only 10p a bite.  The average person will pay less, but if someone is standing over them counting ever bite, and knowing that the cost is ticking up with each, it will be an unpleasant and painful meal.

This is just one of the reasons that menu pricing works so much better than hourly rates.  Not only does it take the risk away for both parties, but it also removes the "Pain of Paying" by another step.

If you want to know more about how to implement menu pricing in your practice, we have a one week course to walk you through it step by step.  You can find out more here: //learn-how-to-build-your-pricing-menu/


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