Know Your Worth
One very important question I want to ask you: How much are you worth? More importantly, are you charging what you are worth?
For individuals selling physical goods, the formula is pretty simple: Your per Unit Cost + Profit Margin = Retail Price. This retail price will most likely fall in line with your competitor’s pricing, unless you are offering a product that may be similar in function, but either superior or inferior to that of your competitor, which will allow you to adjust your price accordingly.
What about individuals who are in the consulting and/or creative fields? What if you are not selling a product, but a service? How do you make sure you are charging what you, and the job, are worth?
Before you can contemplate appropriate pricing for your services, you have to take an honest assessment of the following:
Skills to Pay the Bills
Are you an apprentice, who is looking to ‘earn while you learn’, a journeyman, who knows enough to get the job done satisfactorily, or a master, who can take someone’s idea or concept and deliver something above and beyond the client’s expectations? If you are just wrapping your head around SEO, or coordinating an event, but you are a Master at Photoshop, or writing proposals that get funding let your pricing reflect that.
Stick Your Chest Out
Having humility and being modest have their place, but not in the world of pricing your services. Are you confident in what you’re offering? If so, project that confidence. Even if you are an ‘apprentice’, the confidence you display in your abilities will ultimately affect the price you can command for those services. This does not mean engaging in false advertisement, putting on your best poker face and selling/pricing services where you have little to no skill at a maximum rate. This is about offering a fair price for what you will deliver. Not charging extra because you know the lingo, but lack the ability to apply that lingo.
Recognizing your pricing is too low:
There are telltale signs that will indicate if your current pricing structure is too low.
If you have clients that consistently say ‘Yes!’ to your initial quote, that is an indicator that the price is too low. I used to want clients to smile when I quoted them a price. Now, I am looking for a slight cringe. I am looking for a number that may be higher than anticipated, but not outlandish for the scope of the project, and the client realizes it. That’s why it’s a cringe instead of a frown.
Fingers to the Bone
If you are working 10+ hour days to keep up with your client load, you are not charging enough per client. It’s great to have a large client base, unless these are all subpar clients. It is always better to have four clients paying you $500 a month versus ten clients paying $200. Take on the ten clients if you must, but always work towards the four higher paying ones. When you get to ten clients paying $500 a month, that’s when your favorite word is ‘outsource’.
Things to keep in mind when you set prices:
The Crying GameMost small businesses and organizations will cry broke in an effort to sway your emotions and ultimately your pricing. Give them a Kleenex, but don’t give them a break on your final price. People will often invoke emotion and cite circumstances to gain leverage in a negotiation. Don’t fall for it. Think about your own circumstances, priorities and duties. Offer solutions like 0% financing if possible. If you have reached your bottom line number and they cannot meet it, now or in the immediate future, leave them alone and save yourself some frustration.
Birds Of A Feather
Warren Buffet normally does not travel in the same circles as Joe the Plumber. Referrals are an excellent source of clients. I want referrals from the ‘Warren Buffet Crowd’ versus the ‘Joe the Plumber Crowd’. Nothing against Joe or the plumbing business, I just realize that it would take ten Joe referrals to equal one Buffet referral. You want referrals from clients who are comfortable paying a premium price for your services.
Flexible But Firm
I don’t want you going away from this article thinking ‘low budget clients be damned’. One of the most frustrating parts of dealing with a ‘discount’ client is even though you are giving them a ‘break’, they refuse to give you one. They want as many changes, edits, and additions as you would be willing (read: dumb) enough to provide. With any client, having a written agreement is essential, but even more so with a ‘discount’ client. Having ironclad expectations and duties for the price quoted will save you untold headache from a client who is paying 50% of what the job is really worth, and requiring 400% of your time and effort. If they are getting a ‘discount’ let them know exactly what they will be getting, or not getting.
It is easier to let an object fall than it is to raise it. Same thing applies to pricing. I can always set a price high and lower it if I must. It is twenty times more difficult to start with a low price and raise it higher.
‘Well, all I am doing is some web surfing, typing, and making telephone calls… It’s not like I am digging a ditch or something…’ This is how I used to justify giving price breaks and discounts. The effort I was putting in to this project isn’t that much compared to someone working in the fast food or custodial industry, so I can give this person a break because honestly, I am not doing ‘that much’. That is a trap you must not fall in. If you ever feel yourself slipping into it, think about the people who make 1,000 times more than you, doing even LESS than what you are doing. Ask yourself are they charging less for their skills and talents because they do less work than YOU.
I went through a spell where all of my clients wanted to haggle. No matter what price I quoted they wanted to deal. After a while I realized it wasn’t about the money, but the feeling they got the ‘best deal possible’ even if it was $10-$20 less. That prompted me to come up with a formula, or scale I still use today:
The lowest price I will accept and be able to look at myself in the mirror. If they cannot meet this price, I will not take on the assignment.
The price I will accept and feel pretty good about what I was able to negotiate. I would have liked to have received maybe 10-15% more than the final price agreed upon, but I am happy with the final number.
My ‘Feel Good’ times 30%-40%. This is normally my opening quote, which allows some wiggle room for the haggling types. Also gives me a good buffer if any unexpected costs arise, and the client is acting flaky.
I quote my Prime Time price in two situations: 1) I can tell the client is going to be a pretty needy one, and if I decide to take them on, I have to break them in at a high price. If they agree, I will feel well compensated for whatever ‘drama’ or issues may arise, and if it’s something way from left field, they will be willing to pay for the extra headache. 2) The client has demonstrated the ability to afford this price, and they have fallen in love with my proposal, ideas, and demonstration of my skills.
Shame On Me
A totally overinflated quote based on a combination of my perceived ability of the client to pay, and my ego. The prospect has swallowed my proposal, presentation, and posturing hook, line, and sinker. I am in the final two to three being considered, and they will give me a chance to beat a lower bid.The key to making more is charging more. You could work harder, but life is about working smarter versus working harder. What is the key to charging clients more? Increase your skillsets, remain objective and confident, and look for clients who can pay what you are asking. It may not happen overnight, but taking the steps towards higher pricing power is definitely a journey worth undertaking.