Here’s the missing step you won’t find on other sites
Pricing a product is pretty simple. You figure out the cost of your goods. Then you identify what it costs to market the product, and then identify the overhead. It’s all based on tangible factors.
Pricing a service is not as straightforward. That’s usually because service providers lack the confidence and knowledge to determine the value of their services.
Service-based providers worry they are charging too much. They get caught up in the fact that the service they are providing is easy for them, so how can they charge X dollars for something so easy? Remember that it isn’t easy for the clients. If it were, they’d be doing it themselves.
So don’t charge for the hour it took you to do something. Think of it as charging for the 20 years you’ve spent developing that skill. You charge for the 20 years of learning, not the 1 hour of your time.
In preparing for this blog, I did a little research about how to price service. I found an article from the US Chamber of Commerce that gives four basic steps to price your services:
- Do a cost analysis
- Know your market
- Choose a pricing model
- Monitor and adjust
This is fairly helpful, and it’s not a bad starting point. The problem is that it’s common knowledge. There were multiple sites that shared information very similar to this. But I think there is a missing step.
There’s nothing wrong with starting here as you decide how to price your service accurately. But you don’t want to be like everyone else who accesses this same information. You want to stand out and be profitable.
To ensure you are getting the price what you want, the key is to identify the financial impact of the problem you solve with your services.
Do not assume your prospect knows this information. They certainly have some sense that you are providing a valuable service, otherwise they wouldn’t reach out for a professional to do it. But it’s unlikely they know exactly the value you provide.
For example, if you are an accountant, you can assume your client knows taxes are complicated. But do they know the exact financial penalties for filing taxes incorrectly? Do they know the exact number of hours it takes to deal with a complicated tax code that you know like the back of your hand?
Of course they don’t. If they did, they’d be an accountant like you. So I’m adding the 5th, missing step.
- Do a cost analysis
- Know your market
- Choose a pricing model
- Monitor and adjust
- Gather data about the financial impact of the problem you’re solving
The greater the problem, the more you can charge. So if it’s a $100,000 problem that you’re solving with $20,000 worth of services, you’re providing great value.
Determining the price of your services doesn’t have to be hard. Look inward and be honest with yourself about what you really bring to the table. Then educate your clients about the value you can deliver.
https://youtu.be/6hgfhNMbYSA
