|Small Business Guide - Small Business Resources
(Add to Favorites | View All Articles | Resource Directory)
Setting Prices - Pricing Your Consulting Services
THE PSYCHOLOGY OF PRICING
In case you hadn't noticed, people can react very differently when faced with the same price for a product or service. In fact in most cases, we'll never actually know what is in their minds when they consider a price and then decide to respond to it in certain way. So what does that mean for those of us pricing and selling our services out there in the market?
Typically, people who sell services go for an hourly rate. They use a process called "reverse competition" to determine what their rate should be. This is where you take a look at what your geographical competitors are charging, and you decide where in the range you want to fit on the spectrum of hourly rates. Inevitably, we choose a rate somewhere in the middle, so we can say that we're not the most expensive, but neither are we the cheapest!
What kind of message are we sending out to our clients with this approach?
We're showing absolutely no differentiation from any other company - just sticking ourselves straight down the line. In other words, we compete with everyone! Not a very prudent marketing decision.
So pricing simply using an hourly rate that sits in the middle of the spectrum is, in my view, a wasted opportunity to create a point of difference with your offering. Let's think more broadly for a minute about what we are actually offering to your clients: Regardless of what our specific offering is, we all offer some combination of:
Quality, Price and Service
Quality has become an expectation - the minimum you need to be in the game. It is similar to a high school degree - no one cares if you have one, but watch out if you do not. Quality is no longer an effective differentiator. So if you are going on about the exceptional quality of your service in your promotional material and sales pitch, just realize that in your customers eyes, you are not differentiating yourself in any way.
After all, no sane company is going to advertise the fact that the work they do is of average or low quality. It's all high, isn't it?
There is absolutely nothing positive about competing on price, unless you specifically position yourself as a low-cost provider. Certainly, there is a market for the discount provider, but I believe this only works if you have a very high volume of transactions. As a service provider, the only sensible route is to obtain premium prices for your services.
No matter what you charge, there is always someone, somewhere, willing to perform the work you do for less money. Customers are value conscious, not price conscious. They look to do business with people they feel give them more than they are paying for. So the goal for the service provider is to make sure the customer perceives the full value of the service, not simply the price component.
Its accepted fact that many customers will equate high price with high value - especially when there is very little else to judge your value on.
Wise consultants know that if they price their services at the low end of the market, customers do not take their advice seriously. On the other hand, if you charge rates on the upper end of the spectrum, the customer will hang on every word you say and has a higher probability of implementing your suggestions. This of course has a proviso that you are offering a great service, rather than a mediocre one.
Sometimes the biggest hurdle to get over when considering charging premium pricing is our own attitude. Do any of these sound familiar?
'I can't charge those prices - my customers will all walk away!' 'My service isn't worth that much'
As long as you stay in that mindset, you'll never make the transition to high end pricing. You must truly believe the value of what you offer - after all if you don't, why should your customers? More on this below in a discussion about articulating the value of what you do.
If you are selling good advice, and your customers listen carefully and implement it - they will be more successful and thus will value you that much more. It is a cycle that spirals upward: The more you charge, the more people follow your suggestions, the more profitable they become, the more valuable you are to them. This is a vicious circle that you definitely want to be part of.
The third component of your offering is service. In today's world, service is the ultimate differentiator and separates successful companies from mediocre companies. People will pay a premium for excellent service, and want to do business with companies who provide it. They want to build up personal relationships, know that their needs are understood, and do business with people who demonstrate integrity and value long term associations.
Successful businesses are in the relationship building game, and everything they do is aimed at strengthening connections and affiliations with potential and existing clients. This is where each of us can be different. No one can imitate our personal style and success at building and maintaining relationships.
In the long run, excellent service providers will prevail over mediocre "competitors."
Getting Away from the Hourly Rate Mentality
Before you do business with a new customer, you hold all the leverage in the relationship. After the services have been performed, the customer possesses the leverage. The lesson is that you want to set all of your prices when you possess the leverage - that is, before the engagement begins. This requires quoting fixed prices and removing yourself from the Almighty Hour mentality.
The minute you quote an hourly rate, you put a fixed limit on your earning potential. It's hard to increase an hourly rate once it has been set. The most successful service providers charge for the job as a whole, and don't reveal how many hours it will take to complete the job.
One of my clients - a management consultant - bemoaned the fact that he always underestimated the hours required to complete a job, even when he added in extra time. When all the extra hours were added in, his hourly rate worked out to less than $50 per hour. At my suggestion, he began quoting prices by the job. After three months he conceded that on average, he was able to charge more for the whole job than when he quoted by the hour. His customers - it seems - perceived greater value when he outlined what the job consisted of, than when he simply quoted an hourly rate for his time.
If you are in business, at some stage you will encounter resistance to the price you are charging. Your best option here is to help the customer understand the full value of your service, and the value or benefit they will get by implementing it. If you cannot conquer price resistance through educating the customer, then I would seriously suggest you not take the engagement.
Never decrease your price to get business from a customer suffering from price resistance. That cheats your best customers - those who value what you provide - and subsidizes your worst customers - those drawn to you by price considerations alone. Those will be the first customers to defect once they find - and they will - a service provider willing to do the work for less. You do not want to work for people who do not understand, or refuse to pay for, the value you provide.
Stay true and stick to your guns.
In today's world it is no longer relevant to talk in terms of hourly rates when positioning the price of your services. It's all about value you provide, and the perception of value in your customers'
Megan Tough - published writer, coach, facilitator and speaker - works with leaders and business people to create outstandingly satisfying and truly successful professional lives. Better leadership, improved personal effectiveness, and business plans that hum! To learn more and to sign up for more FREE tips and articles like these, visit http://www.megantough.com
Correction: SmallBiz-Gas Prices story - Hickory Daily Record
Investors leading surge on small-biz loans - Insurance News Net
Judge tells American Express it can't bully small biz - Crain's New York Business
Fla. lawmakers propose small biz sales tax holiday - First Coast News
Samuel Adams Brewing the American Dream Hosts Speed Coaching for Phoenix's Small Business Community
Small Business Column: Time for Irish SMEs to take advantage
Mayor makes another vow to cut small-biz red tape - Crain's New York Business (blog)
SurePayroll Small Business Scorecard(R): Small Businesses on the Hunt for New Hires
Pressure Washing of Paving Equipment and The EPA
Many pressure washing companies will be glad to take on additional work when a company calls them up to come and wash, but the days of cleaning asphalt compactors, steamrollers, paving equipment with diesel fuel are gone forever. If you are caught doing it the old fashioned way it's a $1,000 fines in the United States, fist offense and you pay for cleanup.
Creative Business Card Marketing
Announcements can be handed out as a business cardAnnouncements can be more than just a press release that lets the world know that something special has occurred at your place of business or to you personally. You can make announcements for almost anything.
If You Want to Work from Home
Here are some important points to take note of if you want to work from home. working from home is a dream occupation for many people, but only a few of us will dare to trudge that path.
In Home Daycare Businesses for Profit
To have one of the popular in home daycare businesses. Many people think all you have to do is love kids and have a home.
Window Cleaning Business Case Study
How do window cleaning franchise businesses start? It is a fascinating case study indeed, as most all window cleaning businesses start from such humble beginnings; a bucket of water, a sharp entrepreneur and a quality squeegee. I never thought in a million years I would ever enter the Window Washing Industry.
Marketing a New or Small Business on a Budget
There are almost as many opinions and views on marketing as there are companies to market. The big names and multinationals will have an extraordinary amount of funding set aside in which to convey their marketing message to the masses.
Asking the RIGHT Questions
Which questions do you need to ask to even get a hint if you really want to know something about another person's business pain?We define business pain as a problem that a business needs to have a solution for. The pain may be that they do not have enough sales, or they do not have an appropriate process in order to track their forecasting.
Mobile Carwash; Senior Citizens and Mobile Homes
Senior citizens are generally not a large marketing segment for mobile detailers or car washers, however, they should not be ignored. You will find in a near by area a seniors-only mobile home park.
Grab Your Consumers Attention in a Cluttered World of Marketing Communications
A cluttered world of marketing communications diminishes the ordinary. The consumer can no longer be bother with the dull, trite and a boring hodgepodge of marketing communications that are pandered in front of them every day.
Beating the Small Business Cash Flow Blues
Small business owners can relieve a lot of their own cash flow problems, according to Caroline Jordan, small business advisor and author. "Small business owners have more control over their cash flow than they realize.
Cleaning Grain Silos, Towers, Containers, and Combines
If you run a pressure washing company in a rural market you will need to learn how to wash agricultural industry equipment and infrastructure. In our company The Tractor Wash Guys, we We have several years of experience washing combines.
Ever thought of sending out postcards?
One of the best marketing strategies a business or organization can use is postcards. Even before the arrival of online postcard printing and mailing services, postcards had a good reputation amongst guerilla marketers because: They are fast, easy and relatively cheap - making them a boon to small business owners who are short on cash and time, yet need to build their brand and stay in front of their customers.
Creative Metrification - A Technique to Improve
Some things in business are relatively easy to measure - these are the "hard" metrics such as sales volume and profit, production per man-hour, time without an accident, shipments without error, number of customers served, on-time delivery, etc. Other, "soft" metrics, are more difficult to quantify, but with a little creativity, measurement can be made of just about anything.
Bad Regulators Cost Small Businesses
When a regulator finds a target to go after to collect fees to insure next years budget, often it is a small business. In fact the definition of a small business includes what normal people might even think of as a medium sized business.
Will Adding a Car Wash to Your Fast Lube Add Additional Crime to Your Facilities?
Car Wash Crime in the Hood. Apparently not everyone is with us and certainly not everyone considers this to be a clean business.
Overcoming Your Biggest Competitor
Before you read any further in this article, I'd like you to take a moment and write down who your biggest competition is.OK, got it?I'm going to go out on a limb here and tell you that no matter what company you wrote down, you're wrong.
Beginning an Internship Program
CONSIDERATIONS FOR YOUR INTERN: Specify the number of hours the intern will be needed each week. Will specific hours be adhered to, or will the schedule be more flexible? Applicants want to know up front what they will be paid, if anything.
Genius Time? It Matters
I frequently give presentations at small business gatherings, providing me the opportunity to have engaging conversations with owners about the challenges they face. Based on their input, the economy continues to plug along, heading in the right direction, and distancing itself from the difficult journey of the past few years.
Creating a Power Plan
Part of the power plan is making sure you have all the necessary contact information within a company. It is one thing to have the CEO's information, as he is the decision-maker, but it is quite another to have the information on others that you may be working with directly.
Facts About Starting Elderly Group Home Businesses
There's been a recent rise in the number of elderly group home businesses springing up everywhere around the world, what with an estimated one in four families providing care for an elderly relative today. Before you decide to jump on the group home business bandwagon, though, you need to know as much as possible.
|Home | Site Map | Privacy Statement | More Articles|