Seriously… How Do You Set Your Value?
When we first discussed pricing as a subject for this guest post, Laura Rubinstein said most folks want to know what people are REALLY charging.
She asked first: “Is there is resource you can point to on how to research the fees?” And, she added: “Could you point to case studies in your industry and what they charge?” She’s really good at getting answers to the daily questions Social Buzz Club readers are facing.
So, to the first point, I added a few links at the end of the post and suggest that everyone do in-depth homework in addition to what I suggest here. Unfortunately, I am convinced that even if I could answer the second question, it would suggest that there is a rule to follow and I believe very strongly that there is no rule – even by industry.
Every situation is unique, each provider works in different ways and at different speeds. And the “art” of pricing requires careful assessment of the intended results, the situation at hand, and the context at the moment. My hope is that what I’ve written will serve as a guide to the answer that is best for you.
Whatever else you take away from this post, at the very least please understand that it’s not in any way about you – it’s about the client! You may be offering the equivalent of a Rolls-Royce and therefore what seems like a totally justifiable high dollar amount just may not be necessary if all your client needs is a way to get to and from the commuter train station twice a day. Compare what you are offering to the receiver’s perception of value in terms of benefits – not features. Create Win-Win …you are not in this by yourself (See “Business Negotiation: The value of creating win-win”)
2. Pricing Products vs. Services:
Products are easy to define, to measure, and to price by quantitative elements.
Services are, by their very nature, intangible, thus requiring a strong relationship-based communication so buyers are comfortable they’re not buying a pig in a poke
3. Some issues to consider:
Ego, competition, and, oh, yes, paying the rent
Ego: It’s hard to set aside one’s ego when personal assumptions are invested about value, though it’s necessary to be objective (here’s a good time to think about advice from a peer, a good friend, a client, or another consultant.)
Competition: Whatever your ultimate price, always knowing what the competition is offering and what they are charging for it is just good business. If you think you can justify a higher price than available elsewhere then you will have a stronger need to clearly define what makes your offer different. For example, if your hourly rate is among the highest in the market, be certain to point out (and offer proof if it’s verifiable) that you work much faster than the others.
Paying the rent: How badly you need money will often be a serious factor. In the real world needing cash may justify significantly lowering your price, however, it’s always a good thing to remain as objective as possible and knowing what you’re worth on all fronts should always precede offering a deep discount.
The bottom line: It’s a subtle exercise that will improve over time as you tweak your pricing based on reactions from customers as to what works, when.
4. The proof is in the pudding:
In the end, a service is ultimately worth what people are willing to pay for it and the best way to move people to pay what you ask is to show them how using you and your service will return more in value than they are paying in cash.
5. Retainer, Value Pricing and Hourly Rates:
These are three examples of big buckets allowing you to assess whether to bill for your time or for a specific deliverable.
Time – Most advice in this arena starts with how much you want to make, the factors in predicted expenses, and how many hours you can do billable work in a year (as opposed time spent promoting yourself, keeping records, updating your skills, and vacationing). After the arithmetic is complete, if you work the predicted number of hours at the calculated rate you should be able to make however much money you originally targeted. (For example see a legal pricing formula and methodology here.)
Deliverables – If you have considerable experience upon which to estimate both the time it will take you, and any support you might have to purchase from others, then you should give serious thought to pricing based on a defined deliverable. “Deliverable” could be a document/report, an event like a meeting, handing over a quantified research result, writing up study or evaluation, etc.
Retainer – Where the retainer fee provides you to be available to offer your expertise based on anticipated needs, and the fee is paid whether you are used or not. The fee and relationship to the value delivered should be adjusted quarterly as a result of a joint review, to make sure both you and your client are satisfied with its fairness.
6. Context is very important:
Is it just you or part of a larger whole? (Are you delivering an extended team or a truly unique expertise? Or maybe both?)
Timing is everything (What’s worth one dollar today may be worth 50 cents or 2 dollars tomorrow or to a different client or in a different situation)
Consider the purpose – both yours and the client’s. What is the intention, and are you both aligned?
Just because you can negotiate a high price doesn’t mean you should accept the assignment (or pitch to win it). See To Pitch or Not To Pitch: 10 Questions to Qualify the Opportunity
7. Making Money while you sleep:
AH HA! The holy grail. It is true that productizing your service could have people ordering from your website while you sleep or go to the ball game with your kids. This is the magic-wand solution and although it sounds wonderful it is not easy to do and requires a different attention and commitment. (And a different blog post too, which I have not yet written.)
8. Be a Trusted Advisor:
Establish open and honest communication. Be willing to say no – even if it would be easy to get paid for something – when the best advice might be to send the client elsewhere. Get to a place where you are both experiencing partnership and are comfortable having a frank discussion about money. See: “Asking The Client About The Budget: When & How”
9. Be Intentional:
Think of pricing as a strategic tool – it’s not just about money but it’s about how you will be evaluated and recommended in the marketplace. Underprice or overprice your services at your peril. And don’t be afraid to give some away… Yes, you must focus on profit, however, satisfying a client without an emphasis on money could be your most effective (and overall, your cheapest) marketing tool. See: “Business Development: Are You Giving 100%? – Part 2”
Conclusion: Pricing services is an art, not a complex, scientific exercise.
There is no one formula that works all the time for all people in all circumstances – even if the service is the same. In fact you must be very flexible because (depending once again on the context) there may be different times and circumstances where you will price the same service for the same customer at different rates.
Additional research references on pricing that you might find valuable:
- “Increased Consulting Fees Through Self-Confidence” A Youtube audio with transcript printed below the frame
- Elizabeth Wasserman, Nov 1, 2009 in Inc Magazine: “How to Price Business Services”
- Do a Google or Bing search for “determining _____ fees” where you insert your service in the blank space. For example, insert “consulting” or “architect” or “coaching” or “web design” or “professional services” or a better descriptor of what you are selling. (Don’t forget to refine the search limiting to the narrowest field and/or most recent posts.)
- Career Coaching Fees – Working the Numbers http://bit.ly/ZWCDrA
Please respond by sharing your personal experience – add a comment and share tips and tricks along with challenges you have faced in pricing your services