Pricing is an art and a science and pricing intangible services is especially challenging. Setting the right price for a product or service is a critical step in building a profitable business. Quite simply, you must charge enough money to not only cover your production or procurement costs, but also reflect the value of the product or service provided and the value of your brand, i.e., what clients will pay for the confidence derived from doing business with you.
But pricing a service is tricky and unless you are for some reason privy to what others may charge for similar services, you are in the dark. You probably do not know what competitors are charging, so benchmarking is impossible. The price that clients will pay you hinges on what they feel the job is worth and what they feel that you are worth. Your mission is to avoid being perceived as a commodity, vulnerable to the cynical bargaining down of your price points. There are guidelines to follow when creating a pricing strategy.
Step One is understanding how clients perceive the value of your services and of your brand (reputation). A “cost-plus” pricing strategy, which is tied to what it costs to produce or purchase at wholesale the product or service to be sold is inadvisable, according to pricing experts. If customers are willing to pay $100.00 for a product or service that costs $10.00 to provide, then charge what the market allows.
Step Two is understanding how the client wants to purchase your service. Much will depend upon the type of services you provide and whether this is a one-off project, or an ongoing retainer arrangement. Whenever possible, avoid charging an hourly rate and instead “bundle” products and services into a project fee. Do not give clients who are so inclined the ammunition to nickel and dime you by scrutinizing duties that you invoice and arguing over how long it should have taken to perform them.
Step Three is establishing different levels of service available: basic, upgraded and premium. Jean-Manuel Izaret, a partner at the management consulting firm Boston Consulting Group, insists that it is always best to give clients a choice, whenever possible.
Step Four is targeting clients who value your brand and your services and are willing to pay a premium to do business with you. The size of your available market will shrink, but each client will be worth more money to you. It will also be easier to make the sale, because this group of prospective clients values you and what you can do. Access this group through networking and self-promotional activities: those who have heard your webinar, read your blog or newsletter, have received a recommendation from a trusted referral source, have read a favorable article about you in the press—here is where your PR and relationship building activities can pay off. This group of clients will have faith in your expertise and will agree to pay premium (but fair) prices at contract signing time.
Step Five is knowing your competitors. It may be impossible to learn what they charge, but you can learn the value of their brand. Are you swimming with powerful fish, or those about your size and strength? That could impact your pricing strategy, but only if clients are familiar with what the big fish charges. It is unwise to price your services low in the presence of a competitor with a strong and well-regarded reputation.
Step Six is to benchmark against competitors in different parts of the country by checking the MOBIS contract prices offered to the federal government. This is a useful way to get a credible ballpark number for setting prices. Further, you will see what types of services are being offered and how they are bundled. http://www.gsa.gov/portal/content/245439
Thanks for reading,