You may have heard the phrase, “know your worth, then add tax” but do you know how it applies to your business?
Pricing is a big deal for an entrepreneur. It is probably one of the biggest struggles we face. Traditionally, your services would be billed at an hourly rate. But honestly, clients don’t like this type of pricing in general as it makes it hard to budget and the risk of being surprised with a large bill is high. Those that are charging for services may not always be happy with an hourly rate as it penalizes one for working more efficiently and it gives the client control over your time. Clients want to micro-manage the service providers time and billing to squeeze out every minute of the time billed. This isn’t always a win for the client or the service provider.
The growing trend that has resulted from this dilemma is that of value pricing and fixed pricing. What’s the difference and why should you bill this way? Value pricing charges a client a price based on the value that is given. A service provider usually will provide the client with high value for the price that is charged. Fixed pricing estimates a given cost to the service provider and adds that to the estimated hours to complete the project, resulting in a fixed price. So how do you choose between hourly billing, fixed pricing, or value pricing? How do you know which one is right for you? You know your worth.
When we first start out we are in desperate need of customers. Many times we will take whatever a client offers. Along the way, we figure out what works and what doesn’t. Many times this is from hard lessons learned. So what do I mean by “know your worth, then add tax”? Regardless of the pricing model you choose, you must have an idea of the value of your service, your education, your experience, etc. Here are some tips to help you:
- Research the market – Any industry can be researched to determine the fair market value of a service. There is typically a range for those services. There are various factors to consider in pricing. Experience of the service provider, education, and value to the company must all be evaluated. If you are new to your field then you shouldn’t price your services at the level of a 20 -year veteran. Clients should not pay for your learning curve. But the flip side is that you may be providing more value than a 20-year veteran and need to adjust your price to reflect that value. Join forums and focus groups where your colleagues gather as it will afford you valuable insight into the industries pricing and you will definitely learn from your competition.
- Stop doubting – Don’t doubt your abilities. Most of us underestimate the value that we bring. This underestimation causes us to undercharge for our services. We do ourselves a disservice when this happens but we also do our clients a disservice. How? If I am not charging what I am worth then I don’t feel valued. I am not going to bring my best work to the table if I feel that way. The project suffers and my client is not getting what they deserve, which is my best work. Your pricing model will attract different types of clients. We you charge way below the market rate you will find that you attract a level of clientele that is price sensitive. They are always looking for the lowest price and will leave if they find one lower than yours. For those of you who believe that hourly pricing is the only way to be fairly paid, you are limiting your earnings. You will never be able to earn any more than your hourly rate times the number of hours you can bill in a week, month or year.
- Understand the numbers – As a service provider you are a business owner too. You need a good accounting system in place to track your income and expenses. I would further suggest that you track your job profitability. The best way to do this is by coding all income and expenses to a job, what us accountants call job costing. You will be able to easily see what services are most profitable for your business. It will also help you in adjusting your prices for these services. You may find that there are services that you need to drop as they will never be profitable. This information is invaluable. Bottom line, keep good records so you can use the numbers to drive your pricing decisions.
Only you can determine the worth of your services. Don’t discount the value you bring. Next time you start doubting, know your worth and add tax.
Disclaimer: Thanks for reading. Please keep in mind that Blackburn Consulting and the information contained herein is not intended to be a source of advice with respect to the material presented, and the information and/or documents contained in this website do not constitute legal advice and is not be held liable.