Price setting: How to decide what to charge

Price setting is tricky for new soloists to master. Do you charge on a project, daily or hourly basis? Do you base your pricing on what others charge, what you’d like to earn or what you think the market and/or prospect will bear?

The answer is, usually, a mix of all these things. And a lot of trial and error.

I’m willing to bet that more soloist angst has been expended on price setting than on any other element of the marketing mix. After all, price has a huge impact on our income and whether we’ll be eating caviar or crumbs.

Unfortunately, practice doesn’t make perfect. When you’ve been in business for a while, you need to regularly look at your pricing and make sure it keeps pace with the value of your offer.

Do you know what your competitors' prices are and how they are set? Have you considered the price elasticity of demand for your offer, or the maximum and minimum you’re prepared to charge?

Many years ago a client was actually kind enough to suggest that I increase my prices by more than 50 percent. Naturally he told me this after I’d finished his project, but it was still one of the most valuable pieces of business advice I’ve ever received.

Another fellow veteran soloist, who currently spends a good chunk of time servicing a longstanding customer paying half her regular rate, has realised she’s worth more. She’s now getting feedback on the value of what she does, defining her ideal customers, and structuring her business to attract and accommodate them.

Whilst I certainly don't claim to be an expert on price setting in your business and industry, I do know a thing or two about persuasiveness and presentation. And a universal truth is that while prospects always want to achieve the lowest price, they don't usually like to sacrifice value.

It’s often tricky to get prospects to tell you how much they want to spend. This isn’t just because they don’t want to tell you, often they don’t actually know. All they know is that there’s work to do or a problem that needs to be solved – pronto.

If you’ve done your homework though, one thing you usually can infer with some accuracy is what the prospect doesn’t want to give up. Based on what the prospect most values, you can offer a choice of options which encourages the prospect to think ‘how’ rather than ‘if’ to buy from you.

In this example, there is a choice of three packages - premium, medium and budget. The items the prospect values the most (E and F) are only included in Option A. Other packages have been created by removing features or benefits from each one progressively. You will often find that prospects trend towards the middle to upper end of the scale when you employ this tactic.

Option A - A, B, C, D, E and F $5,995

Option B - A, B, C and D only $5,295

Option C - A, B and C only $4,795

What pricing tactics have worked for you? What cheeses you off about setting or reviewing prices? Let’s hear your views.

Robyn Haydon is a proposal strategist and writer and the author of The Shredder Test – The Australian Guide to Writing Winning Proposals.

10 comments | Add your own 1 2 | Next» View all»

I charge an hourly rate on the high side, and offer the potential client suggestions for keeping the costs down, e.g. by being prepared for my visit, access to the software, and a list of questions awaiting my arrival. I have found if you go in at a lower rate, my time is wasted, I only have 1440 minutes in a day, and not all of them are potential billing minutes! I never answer the question what is my hourly rate? with my hourly rate. I answer it by telling them about the quality of service they will receive from me, my qualifications, accreditations, compliance with Section 251L, large customer base, and constant training I do at my end. I will briefly ask them what their problem is, and discuss possible solutions with them. I may even offer them the name of a friendly competitor they can call to get a price comparison. I will then try to get comprehensive contact details, including an email. Then I will tell them my hourly rate. I hate it if any of my time is wasted unnecessarily. I will follow up with a standard email reiterating the telephone conversation. I have been told on several occasions I have won jobs because my response to them was so detailed and comprehensive. Heather Smith from Brisbane
Spot on, Robyn. Nothing matters unless you price according to prospects'/clients' perceived values! Further, if someone says that your service/product costs too much a couple of suggested responses are - "how much too much?" and "what part of my offering don't you want?" (one way to introduce your ABCDE suggestion). Finally, love your response, Heather! I have never thought in terms of 1440 minutes, and using the compliance issue of 251L (I had to Google that) is a very credible way to affirm your value! Grant Hyman from Sydney
What do you think you are worth, now double that and add 10%. or What will your market accept. As I get older I realise that I havent charged what I am worth. Recently I increased my prices by 25% and no one has complained. I am now one of the most expensive in my industry, but my customers will not get anyone else. Strange to think about all that super I could have had. Dont be afraid to charge what you think you are worth, then double it and add 10% patrick burgess from north ryde
Although not foolproof this little tool helps to jog the memory of all those things you have to pay for each year and provides a good starting point. http://freelanceswitch.com/rates/ Kim Droney from Allsorts Advertising
I love the idea of quoting options and ensuring that the clients needs are met in the upper options. I tend to break the whole job down in to bite sized chunks or stages, that way clients can see where the costs lie and at what stage. Starting with a budget conscious stage 1, clients are almost always happy to continue onto the later stages, this also helps with your invoicing as well! Enjoy Dan Day from www.shoeboxcreative.com
This is the million dollar question, isn't it? I find I always tend to under sell myself for fear of loosing the job. I guess this is because cashflow is so critical in small business. At present I charge what I think the prospect will bear, but I know this is wrong. I am now moving over to an hourly rate, and taking a stab at how many hours I reckon the job will take. I think this at least gets me thinking in a more structured way with due regard to giving myself some level of 'worth'. I will test and measure and take it from there. Grant McDuling from Brisbane

10 comments | Add your own 1 2 | Next» View all»

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