Pricing professional services is something that causes most experts – consultants, accountants, surveyors and so on – problems. Most professionals know what they would like to charge but sometimes the market thinks otherwise.
If you’re going to succeed in your consultancy or professional services business, you need to find a pricing model that will deliver the right level of return on your investment in developing your abilities and your business. You also need to ensure that people will actually be willing to buy your services at those prices.
The problem is that pricing models can be difficult to get right whatever it is you’re selling – as many businesses find out to their cost.
There are several ways of pricing consultancy and other professional services.
If you choose the wrong pricing model it could cost you thousands of pounds.
That’s why it’s worth taking the time to review the way you currently set your prices and consider if the price you’re charging really is the right price for your business.
Check out your current pricing strategy against the three models below because getting your pricing right is essential to your business’s success.
Pricing models: costs plus a percentage
This pricing model is probably how most businesses price their products and services in the early days. They don’t want to undercharge and lose money. However, they want to make sure they cover their costs and then make a little profit. The costs plus a percentage pricing model is, therefore, attractive to them.
Unfortunately, the costs plus a percentage model doesn’t work.
If you use this approach you will always be focusing your attention inwards.
Using the costs plus a percentage pricing model means you are looking at your business in isolation and coming up with a price based on your calculations about how much it costs to bring a product or service to market. Those calculations are not tempered in any way. You don’t take into account what anyone else is charging. You don’t think about the value you are supplying, and you don’t know if your customer will think your prices high or low.
If you use this approach you’re unlikely to choose the best price for your offer.
Lots of organisations delivering professional services get their pricing very wrong, by using this pricing model. Usually the prices are too low, but sometimes they are much too high.
In short, pricing on costs plus a percentage leads to unrealistic pricing.
If you use this model – give it up.
Pricing models – the going rate
Charging what you think is the going rate is a popular approach to pricing.
Professionals who use this approach look around their marketplace and try to find out what their competitors are charging and what the market rate for what they do is.
Once they have this information they have three choices.
- They can charge about the same as their competitors.
- They can charge more than their competitors.
- They can charge less than their competitors.
In all cases they will be making the wrong decision.
If you decide to price what you do based on the going rate, then you’re saying to the world that what you do is much the same as what every one else is doing. In other words, there’s not much to choose between you and your competitors. Like it or not if you charge at a similar level and at a similar rate as others, then you’re the same as other professionals – at least in the eyes of those who are buying.
Pricing at the going rate doesn’t work either.
If you’re any good at what you do, you’ll want to create your own pricing structure, because one of the most important things you’ll be doing is differentiating yourself from other people – your competitors.
So the advice is simple. Don’t charge the going rate because you’re not the same as every one else.
Create a rationale for your pricing based on the third pricing model.
Pricing models – pricing on value
How much are you worth?
How much are your services worth?
Do you know?
Do you feel uncomfortable asking these questions?
Do you feel even more uncomfortable, if you offer an answer?
Start to meet this challenge today because you need to set your fees with reference to the value you deliver. I’ll qualify that statement. You need to set your fees with reference to the value your customer believes you deliver.
Value-based pricing is the best approach to pricing because it’s an approach which helps you to differentiate yourself from the competition. It also forces you to think about your customers’ problems and to propose solutions to help them overcome those problems.
When you adopt this pricing model you are saying you are special.
Your special approach could be linked to the way in which you bundle your expertise. It could be linked to your customer service. It could be linked to the way you deliver your services. You need to know what makes you special in the eyes of your customers. More importantly you also need to communicate that difference to your customers.
Whatever it is you do, you also need to ensure your customer sees the benefits of buying your services. Your customer needs to know the value he or she will receive as a result of doing business with you.
Once you can get this message across you’re ready to use the value-based pricing model.
It’s worth working on this because value-based pricing usually enables you to charge what you are worth. In most cases that means charging more than what you would charge using the other two models.
Try it out next time you’re creating a proposal.
What to do now
First, in the comments section, tell me which pricing model you feel most comfortable with – and why.
Next, if you like this post, please share it via the retweet button below (or via your preferred social media channels).
Finally, if you’ve any questions on pricing that you’d like answered, then ask them in the comments section or send them to me in an email. (I’m building up a list of questions to answer when I get to the end of my series of posts on pricing.)
See you in the comments and let me know what you think.
About Margaret Adams
Comments are welcome below.