Pricing is an important aspect of your work so is your pricing strategy. If you deliver professional services or consultancy you know that what you charge says a lot about your business. It also influences what customers and potential customers think about you.
Yet, pricing is an area that many businesses struggle to get right. Lots of businesses don’t have a pricing strategy at all.
I’ve written about pricing models in an earlier post. This is entitled: Pricing Your Services.
Today I’m focusing on an aspect of pricing that’s very easy to do well.
Pricing on value
Experts are always under pressure to quote hourly or daily rates for what they do
Most experts have been asked:
“What’s your daily rate?”
“How much do you charge for an hour or your time?”
These questions present you with a problem. You are an expert. You expect to generate a level of income that reflects your expert status and your experience. If you’re in demand, there’s a scarcity premium to be added to the fee, too.
The trouble is, you know that as soon as you state a fee, then you risk being labelled as “too expensive”. You also risk the conversation ending quickly so you won’t have the chance to demonstrate to that potential customer the value you could deliver for the level of remuneration you have nominated.
If you’re gong to avoid this, first and foremost, when you’re thinking about your pricing strategy, it’s important to stop thinking of yourself as an hourly paid worker. Some types of work lend themselves to this pay structure. “Expert” services do not.
Hourly paid workers usually work under supervision. The supervisor, and sometimes the customer, can see what they are doing. When you work as an expert, an awful lot of what you do is completed “behind the scenes”. It also costs you money to be in business and to keep your expertise up-to-date. Customers must contribute to these costs, too.
Yet, when you’re asked:
“What’s your daily rate?”
you can be sure that the person asking the question wants to pay for the time when he or she can see you working and for nothing else.
This is why daily rates and hourly rates are problematic for professional services businesses, for consultants, coaches and other experts.
Setting your prices
When you’re next asked about your daily rate or hourly rate avoid giving an immediate answer to the question about how much you charge.
After all, you probably charge different rates for different types of activity. You probably don’t have a single daily rate or an hourly rate you will use for all projects. Therefore, the question about your rates isn’t valid.
When you’re thinking about your approach to pricing your services, focus on the value you will deliver to the client. That means you need to know what the client’s problems and issues are before you can work on a solution – something you will do with the client. You can only price the solution when you know that the client agrees that the proposed solution is what is needed.
Even if you’re selling what customers consider to be commodities, for example, a review of end-of-year accounts for a small business, there is still scope to charge on a different basis from that of a set number of hours to a specific task.
If you know your customers well, you’ll be able to identify an added value element that will encourage them to buy the commodity – the end-of-year accounting services – from your firm rather than from someone else’s practice. When every one appears to be offering the same service, it’s important to give customers something other than price with which to differentiate one supplier from another.
So, the answer to the question about your prices is built around a discussion which you must have with your customer before you start to quote figures.
Quote a fee for a package, that is for delivering a set of outcomes, not for working a defined number of days.
That fee will, of course, include all your preparation time. It will include your face-to-face time spent with the client. It will include your travel costs to the client’s offices. It will also include your profit element. The only item to be added to the fee quoted is VAT.
So the next time you’re asked about your daily rate your answer should be on the lines of:
“Why don’t we talk about what you’re looking for? Then we can work out how much it will cost.”
This aspect of your pricing strategy is one that works, so next time you’re tempted to say how much you want in exchange for an hour or a day of your time, think again.
What to do now
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About Margaret Adams
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