It’s a challenge to set prices and fees if you are a small business or solo entrepreneur that provides Business-to-Business “knowledge” services (e.g. marketing, process improvement, team building, software-as-a-service, and so on). You and many of your customers often have no good way to judge whether you’re too high, too low or just right. Unlike product comparison-shopping, customers (and you) can’t find ready-made pricing answers on the internet or in stores. So how might you price your services?
Math, Magic and Moxie
Pricing your service combines numbers, judgment and bravery.
- Math is the income (and price) you calculate for a profitable business.
- Magic is a set of factors that modify the math results.
- Moxie is the courage to ask for a price that (you fear) might scare off the customer.
This is the “easy” part. Just set the annual net income you need for a viable business. Then, add expenses and taxes to get your minimum required revenue. Divide that revenue by the actual number of billable days available in a year, and you get the price to charge per day. Whether you charge by the day or by the project, or other methods, your annual revenue target is the same. Consider other things before you ask for that price. That’s where the magic comes in.
Many factors can modify your “annual revenue” target price. For example:
- Value to the customer: If your service will save a customer $1 million, should you charge $10K, based on your daily price? Or, maybe a larger share of the million, say $50K? Understanding your value and Return on Investment (ROI) to the customer gives you a strong negotiating position. Find that value through research & estimating. Ask prospects, “What will this cost you if you don’t correct the problem?”
- Type of customer: Large companies will try to leverage their size to force lower prices (Negotiate). Government agencies might have pre-set prices that are lower (or higher) than yours (Challenge their assumptions about your service). Startups and smaller companies are often cash-strapped, but might have grants or investors to pay your fee. Nonprofits with money might need your service.
- Reputation: You can often command a premium price if you have a reputation backed by recommendations and testimonials from satisfied, credible customers. Also, become known as an expert in your field through writing, presenting, posting, blogging, and so on.
- Competition: Check competitors’ prices if you can get the info. Don’t just match their prices, but see if you are way out of their range (and find out why you are).
- Premium: Set your prices high enough for the high quality you’ll deliver. Give yourself enough room to negotiate. Don’t be the low-price provider. Low price can infer low quality.
Suck it up and ask for what you’re worth. Don’t just offer to lower your price - instead offer project content options (e.g. High price = high content. Medium price = less content. Low price = bare bones). Learn how to negotiate a good deal for you and your customer or client. You’ll be glad you did.
About the Author
Bob Lurz, consultants’ educator and mentor, helps skilled people launch and build consulting businesses. He “grows the economy, one consultant at a time”. Contact him at: RFLurz@ConsultantsAccelerator.com