There are lots of professionals who don’t have clear procedure for coming up with pricing. This is very common and also comes up a lot in our discussion with clients.
For most, it’s either a jinx equalisation of doubling your living expenses and taking a percentage away, or it is purely based on what everyone else in the industry is doing.
The cost of what services you provide is a panic-point. Not everyone in the industry has adequate confidence in what they do, to charge their worthiness or in their customers to pay adequately for the services they have used; resulting in businesses and freelancers who are not able to sustain a healthy margin.
In all likelihood, you are not running a charity, you are running your business to earn profits and achieve results. You are attempting to be efficient, or make a profit right now, or somehow find ways to create the value of your company in order to give good return on capital to whoever invests in your business.
What it means is that you need to take your surplus seriously and in order to do that; you need to take your pricing purposefully. So there are 2 things I want to talk about today while we are discussing this important topic.
What do you have the guts for?
The most important part of your pricing is guts, so make no mistake. Believe in your gut feeling. It takes you to stand in front of a potential client and put down your fees or price schedule without blinking, without giving out any signs that you are going to take any price they offer you out of desperation to get the business.
To set out a price for your services, it takes guts and once you have decided a price which you think is a good price for your clients to pay for the services you offer, stand by them. Mostly young freelancers and entrepreneurs do not have or are developing their gut feelings. They do understand the industry they are in, so they will always put down their prices as a wish-list, that they are easily ready to bargain on with their potential clients. They lack in confidence.
I just can’t tell you to just harden up and put your challenger mask on. That will not be a good guidance, and will not be comfortable to listen to it. What you need to work out is the price point you can put in front of the customer and then stick to it. You can’t charge too less or too high. The customers are very smart today; they would have studied the industry and would have done their own homework on what is available out there and in what price.
Once you have that price sorted, you have the price that you are prepared to offer. And you will also have a base, a starting price from which you can slowly increase as you get industry experience and you become confident about your services. If you know you’ll be able to stand by one price then you can add experiences, put extra features or simply with time push it up along with your brushed up skills and confidence.
What do the customers expect?
All the customers already have a set limit to what they are willing to pay. It is a figure that has probably got nothing to do with the value of what your service or product is but is purely based on their prior experience. They have got their own list of bills they are paying such as petrol, tidal, internet, mobile phones, electricity etc. Customers don’t ever have enough money to pay the price you put on offer.
The same thing applies to the freelancers. Look at freelance writers for example. The articles they write, how much should the article be worth of? Probably a lot more than what it is being paid out on the market place sites. But people are used to paying a certain amount (it’s very depressing) and will likely hesitate for paying more.
So what do you do? You have three options:
• You meet your client’s expectations, putting yourself on even footing with your competition.
• You undermine their expectations, taking an advantage over your competition.
• You let your pricing exceed their expectations, to the limit of what they’ll stand for, and absolutely justify it with clear value recommendations.
The first option is fine. As long as you know what your client’s expectations are, it’s a simple and easy way to price yourself or your start-up. And fine is a solid level.
The second option is only good if you can afford it, so you have to be very analytical. You might not have heard of Amazon.com. You should research them. When people joke about losing money on every sale and making it up on volume, Amzon.com is the punchline. The idea of pricing low enough to gain traction is great. But it’s a risky move, but once you are in a position to take the risk you take it and analysing the industry, you take it and see if it really works out you or not.
The third option is my personal favourite, if you believe you have a wealth of experience building, helping and investing in businesses. Then it’s easy to make more money than your competitor. You just charge more but you need to consider your confidence, your experience, what you are offering and get a professional financial advice.
Contact Tax Accountants Cranbourne at 1300 300 106 to discuss your business or your financial requirements and we will take it from there.