Myths in Pricing for Professional Services

[Ric Willmot]

There is an enormous amount of myth and mistaken thinking in the professional services arena around pricing and fee structures.

Myth: It's a price sensitive market
Reality: It's a value sensitive market

Myth: Start cheap to enter the market and capture your share
Reality: You have now set the benchmark low and customers will always want you to be that cheap

Myth: The competition will charge less than me and I will lose the business
Reality: Someone will always be able to charge less than you; and if all you do is allow yourself and your clients to focus on price - then you will have no business

Stand out from the crowd, forget about what everyone else is charging and deliver a service to your customers based upon reaching their objectives successfully and attributing both the tangible and intangible values you have brought to the client.

Focus on making the client significantly better because they have you. Bentley, Cartier, Ferrari and other quality brands do not lower prices when times are hard or the economy hiccups. They continue to position themselves in the market to those who appreciate good value.

Position yourself and market to quality prospects who will treat you like a peer and respect you for the good work you bring to the table. Then charge appropriately so that you get paid well and the client receives great value.

Both you and the client deserve that much.

Rgds,
Ric

[MissieK]

Great tips Ric. I know many Mums need to read this... they often price themselves way too low, especially when starting out.

Melissa

[petercrocker]

Thanks Ric,
Pricing is such a common challenge for business owners. And as you say undercharging is an easy trap to get stuck in. An advisor of mine once told me that if you don't wince slightly when sending a quote then you may not be charging a fair rate??

A few years ago Megan Tough wrote a great Flying Solo article on hourly rates:
Pricing strategies: Hourly rates? No thanks!

If you're keen to read more we also have a Pricing Strategies section with a dozen or so articles on the topic for solo and micro businesses.

For a bit of light relief, there's also a classic post on Freelanceswitch called
Top Ten Signs You May Be Charging Too Little. The first one is "Your client mistakes your daily rate for an hourly one"

Cheers
Peter

[Burgo]

Stand out from the crowd, forget about what everyone else is charging and deliver a service to your customers based upon reaching their objectives successfully and attributing both the tangible and intangible values you have brought to the client.


This advice is the best advice you will ever recieve for free, take it on board and digest it. take a copy of it print it out and put it on the fridge.

[ray_223]

My biggest roadblock on pricing was:

"The cost of a product or service DOESN'T determine the price of the product or service. The value to the customer determines the price."

edit:
Which is Ric's first point re-worded

[Heidi Price]

Originally Posted by Burgo

Stand out from the crowd, forget about what everyone else is charging and deliver a service to your customers based upon reaching their objectives successfully and attributing both the tangible and intangible values you have brought to the client.

Thanks for such great words Patrick. Definately true!

[mike@engagemarketing]

Fantastic post Ric!

[Ric Willmot]

Thank you for the comments.
I am happy to keep writing posts like this if the readership is getting value.

Rgds,
Ric

[Adam Randall]

I think of my own psychology when pricing against competition.

"Its twice the price, it must be twice as good"

It makes no sense, I have nothing to base it on, but its how I think, that means many others must think this way too.

Its tied into
" You get what you pay for"

Most of us have had at least a couple of bad experiences with the cheap end of town so instinctively discount the cheapest price (unless its a commodity)

Yet there are so many scurrying to be the cheapest in town, turnover does not equal profit and I dont see why anyone would want to be the cheapest, its way too much work and unless you are really know what you are doing, a quick way to go bankrupt.

Its a conundrum, to be really cheap, you have to be among the best most ruthless in whatever business you are in.

I want to pay myself and my employees good wages, if you are the cheapest you are always going to be screwing someone over something and thats not for me.

[Ric Willmot]

You have nailed it, Adam. And, it does make sense. As you say, "You get what you pay for". Nobody goes to 'Crazy Clarks' expecting the same quality of goods as you would expect from David Jones or Grace Brothers.

With regards to pricing non-commodity products such as professional and personal services, the value is determined by the buyer not the seller.

I didn't say 'price', I said 'value'.
Every client wants to save money and cut the price; but no client wants to scrimp on the value they receive.

By allowing the client to determine and inform you of the value, you are able to then establish price.

Would anyone in their right mind price a car at $660,000? Bentley does and have sold over 10,000 cars and 138 of them in Australasia in 2007.

Would anyone in their right mind price a Sydney hotel room at $2,000 per night? InterContinental does. No idea how many times this room gets booked in a year, but I personally have used it for specific business reasons over a dozen times in the last three years.

Would anyone in their right mind price a 6-month coaching/mentoring program at $7,500 + GST?
Ric Willmot does. I have had over 200 people from 9 different countries graduate through the program in the last four years with over 50 of them participating in the $7,500 Target Program. Some are repeat offenders!

Much of my consulting work commences with advising that fees are dependent on two criteria:

1. Value provided is in the perception of the buyer
2. The intent of the buyer and the service provider is to act ethically

Many service providers fail to comprehend that perceived value is the basis of the fee and that we must translate the importance of our advice into long-term gains for the client, in the client's perception.

Other than that, I don't feel strongly about it!

Some of you may wish to read my article: The Price is Wrong published in Queensland Business Review Magazine. Fourth article down the list.

Rgds,
Ric