From Puppy Profits to Big Dog Earnings: How to Fetch Better Clients Who Will Reward You More, a FREE eBook by Brad Farris, is now available.
If you own a professional-service business, pricing is probably high on your list of challenges. How can you align the value created by your work with any tangible measure? Itís not easy, but it can be done.
With products, itís easier. Look at the market price for similar or substitute products and compare the features, and you can at least get into some kind of range. In a service business, your product is people Ė and people are inconsistent and very different from each other. Therein lies the problem (and opportunity, but I donít want to get ahead of myself).
For example, you could own a marketing firm. There are other marketing firms in town and we could survey them and find out what they charge for their services. But yours is different! You have specific skills and experience that creates more value for your clients than some of the other firms have; and therefore, you deserve more money for your services. How do you get clients and prospects to realize the value you provide so they will pay for you for it?
Also the way you charge affects how your clients interact with you and how they perceive that value. If you charge for time, people avoid spending time with you. If you charge for results, they can better see what their ROI might be.
So despite all the complications, there is a simple solution: Ask for what your services are worth. Better yet, you tell people what your services are worth Ė and then you show them you are in fact worth it. In a professional-service business, you are sought after because of your knowledge or talent in a certain area. Your prices should, and must, reflect that value from the very beginning of your business and at the outset of every relationship with each client. This will drive some clients away(who donít perceive the value you are offering) but it will attract others, and those are the clients who are going to most value what you do, and pay you what you are worth.
There are many different pricing structures that I have seen used over the years in professional-service businesses. Some work better than others. They include: hourly billing, project billing and alternative billing. Each presents challenges and opportunities (which I discuss further if you follow those links). But, for now, I would like to address pricing in general and provide one Do and a few Doníts.
- Donít discount. Really, donít discount Ė hold firm to your pricing structure. With service firms we get what we have the confidence to ask for, and our clients partially determine the confidence they have in us based on the confidence we show. Be confident in your pricing. Also, if you offer an initial discount, whatís your justification for getting a higher price, which is your real price? That doesnít mean you canít offer pricing flexibility but make sure that if you reduce the price, you also reduce the value.
- Do choose a pricing mechanism that is good for you AND your client. You do want your service to be a good value for the client. Some pricing mechanisms (e.g. hourly billing) shift a lot of risk (and potentially reward) to the client while others (e.g. project pricing) shift a lot of risk (and potentially reward) to the service firm. Choose a pricing mechanism that rewards you for being the expert, and protects you from your clients' foibles.
- Do use variable pricing. It can be difficult to align service work with ultimate results, but that doesnít mean itís impossible. Find some way to earn a ďbonusĒ if things go really well. It could be just discretionary (like a ďtipĒ), or based on some performance metric, or an early completion bonus, orÖ
- Do ask for regular raises from your current customers. Asking for price increases as a service firm can be difficult. In order to justify higher prices, you need to justify higher value. But if you arenít learning new things and developing new tools and processes, you are getting stale. Point out some of the additional value you offer to your client (donít use rising costs to justify a price increase, your client doesnít care) then let them know your services will be costing them a little more.
I know that clients are looking at every dollar they spend, and many of them are negotiating hard for the projects they do approve. That makes it even more crucial to get your pricing right and get good value for the projects that you do complete.
You may also enjoy...RFP: Really Foolish Process?
Itís ok to respond to an RFP, but respond on...
Reality Check: What Is Social Media Doing For You?
If you are investing in social media, you should see...
Why You Need Two Budgets Going Into 2013
Looking ahead, hope for the best but plan for the...
Donít Get Caught In A Cash Crunch
Sales are up -- so why donít you have any...