A pricing strategy solution for small business owners
Open-ended service contracts can leave clients feeling somewhat uneasy. How can they judge if they are getting value for money or that the price is reasonable? So it's essential for small business owners to have an effective pricing strategy.
I was reminded of the problems small business owners have with developing a pricing strategy when reading Megan Tough’s article on hourly rates.
It made me reflect on a basic decision I made early in the business to move away from open-ended contracts where hours, specifications and actual job content seemed prone to scope creep and confusion about end products.
After some talking and testing, I reconfigured my existing service offering into what I call ‘line item products’. Each ‘line item’ includes the fee for the client liaison and administration component and can be easily included in their annual or project budget allowance.
An example: I found myself going through repeated steps for each client needing a communications toolkit. Essentially, there were some repeated components that I bundled into a ‘product’ and sold under that name.
In another example: having learned on the fly how to manage media for a scientific conference, I picked apart the processes I went through, and turned these into a ‘black box’ solution called the OnLine Media Centre. Not a new concept, but certainly a new way of packaging the work. Clients now buy the product and we negotiate the add-on modules like media distribution, monitoring and any other components that are specifically needed.
"After some talking and testing, I reconfigured my existing service offering into what I call ‘line item products’."
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In any of these products, the price is for a specified, preset offering, but once the relationship door is open, renegotiating the contents of the package is simple, and the client feels that they’ve managed a process that gets their needs simply bundled into something they can financially and mentally manage.
Relationships now are based around negotiating packages of deals for several products at once, or in sequence, and all my relationships have moved onto longer-term, higher value entities. I also find that my clients now buy more than one product over longer timeframes.
I was insecure at first that the approach would mean I would get a string of open and shut cases, but that hasn’t happened. Sure, sometimes I get a one-off small product sale, but overall, this pricing strategy has moved me away from hourly rate insecurity to being able to budget and manage my own cashflow far more effectively.
I never thought that this could apply to my service industry, but this pricing strategy has now become a point of differentiation and my creative and intellectual input for new individual jobs fuels new products for the range, which is growing daily!