I wouldn’t be anywhere near as successful as I am if it wasn’t for nailing value based pricing.
This is because selling on value attracts customers who respect what I do, and are prepared to pay good money for my services.
The way you position your business is how prospective customers will perceive it. And, more significantly, this perception directly affects the type of customer you’ll attract.
Service providers that sell on price become the cheap option because that’s how they land new business – by undercutting the competition. But, this has consequences.
By charging less they simply can’t deliver as good a service because they’re forced to reduce costs and cut corners. In economics, this is a phenomenon known as the ‘race to the bottom’.
I don’t think anyone sets out to become the bargain basement option, but it happens all the time.
So, that’s what I’m going to tackle today – positioning your services so you attract the right type of customer and get the best possible price for your work.
Charging what you’re worth is tough
To get paid what you’re worth means positioning what you do as being brilliant.
But, this is easier said than done. It takes a serious amount of courage to set a higher-than-average price tag and a lot of confidence to see it through.
This is because as a result, you will:
- Lose business;
- Be labelled as expensive;
- Have people think you’re not worth it;
- Need to become a tough negotiator.
It’s hard going, especially in the early days when new business usually equates to survival.
This is why so many people fall into the trap of dropping their prices to win new business, but in doing so, also start winning the wrong race.
Winning the race to the bottom
When you reduce a quote to win over a customer you’re positioning what you offer as the budget option. The problem with this is that it has a knock on effect – you’ll attract cheap clients who focus almost entirely on price rather than value.
People who do this are not on your wavelength and will never become good customers. In fact, they’re often a total pain in the arse.
It’s because they don’t understand what solution they need, thus placing minimal value on it. As a result, they inadvertently expect you to solve what they think is a simple problem, which is why they expect a budget price.
Of course, providing a quality service is much more involved.
A client’s problems need to be understood and solutions need to be developed – i.e. doing a proper job takes more time and costs more money.
Dropping your price to win the business is nonsensical, but it’s also dangerous because it leads to a downwards cycle. You’re expected to deliver with less time and thus constantly need more new business to survive.
You go win more with your lower prices but, of course, that doesn’t help – the pressure remains the same.
So, it goes on.
The right customer respects your services
In contrast to cheap customers, there are people out there who are willing to pay more because they understand what you do.
This is probably because they’ve purchased services like yours before, or have been involved on projects of a similar nature. As a result, they know how valuable you can be which compels them to set aside an appropriate budget.
The wrong customer expects to knock your price down, whereas the right customer ‘gets it’ and appreciates the value.
And, the differences don’t end there – anyone who’s ever landed the wrong customer knows just how painful it is from start to finish.
It’s as if they think you’re flogging some second hand junk at a flea market. I don’t know about you, but my services are way more impressive and useful than that.
Who wants to help people that don’t respect what you do, and pay you shit money for doing it?
Thankfully, it doesn’t have to be this way.
Believe you’re worth it and they will too
The only thing stopping you charging more money for your services is you. At the end of the day, it comes down to belief.
You must go into every negotiation with an unwavering confidence in the service you provide – that is, it’s worth every penny. If a prospective customer doesn’t see the value it’s no go.
Politely show them the door when they threaten to walk away, then carry on seeking out the less-common, more valuable customer who will pay your prices.
Of course, on occasion a little negotiation makes sense.
If the prospect seems to know what you’re talking about and can justify the discount they’re asking for, it should be fine. Sometimes, their ‘healthy budget’ is a little shy of where it needs to be, or there’s multiple projects on the table.
Remember though, it’s easy to promise ‘lots more work’ and every percent you knock off is pure profit (assuming your cost to deliver doesn’t change).
Always sleep on a negotiation (as opposed to agreeing there and then) and trust your instincts – if you’re not convinced, walk away.
Start with value based pricing and you’ll never go back
According to Wikipedia, value based pricing is:
‘a pricing strategy which sets prices primarily, but not exclusively, according to the perceived or estimated value of a product or service to the customer rather than according to the cost of the product or historical prices.’
For you and me, it’s just charging what you’re worth.
Whilst, it’s easy to drop your quote to land the business, doing so is a road to nowhere. Cheap clients are crap clients and cost way more than the amount you knocked off your price.
Moreover, anyone they refer your way (for being brilliant) will expect to pay a similar rate!
So, now you and I have a golden rule:
Never sell on price, always sell on value.
Want to price your services consistently well?
Knowing how to position your business and sell on value is the hardest part of pricing your services.
But, there’s another menace which can also lead to you not getting paid what you’re worth – scope creep.
Scope creep is when a project’s deliverables go beyond the initial plan and leads to losing money over any other factor. It occurs when new requests appear during the delivery phase which lead to additional revisions and requirements.
The way to tackle this is discussed in our sister post which is a walk through on pricing consistently well every time.
Once you’re done with that, you’ll be armed with both the right mindset and process to charge what you’re worth with complete confidence.