A Helpful Guide to Setting Prices for Your Services
“How much do you charge?”
That one question can fill a new business owner with instant dread. Even established entrepreneurs may have a difficult time putting a price on their offerings. Whether you spend your days advising others, coding applications, or designing logos and websites, it can be difficult to look at your services objectively enough to charge for them.
It doesn’t help that general advice is to avoid charging too little or too much for what you do. If you come back with a price the other person deems low, he’ll likely assume you aren’t as good as competitors who charge much more for the same service. If your rate seems high, you’ll scare off potential clients with limited budgets. Added to that is the fact that you’re dealing with a wide range of customers, many whom have their own perceptions about what your services should cost.
Through this guide, you’ll hopefully be able to create a pricing policy that you can apply across the board. By having this in place, you’ll no longer have to meet the question, “How much do you charge?” with dread because you’ll be armed with an answer. When you face pushback on your prices, you’ll also be able to proceed with confidence, especially once you have clients who are happily paying you those rates every day.
Do a Business Audit
For a day, step outside of your business and review things as though you were a consultant. How would an independent business mind look at the rates you’re charging? Are all clients paying equally for similar services or are you operating in an environment where pricing is chaotic? While you may never charge every client identical prices for the same services, you should at least be able to quote your rates when asked.
Once you’ve determined your own current rates, determine what your competitors are charging for the same services. Many businesses list their rates directly on their websites for the world to see. If you can’t find this information on local competitors, research similar businesses in other cities, adjusting for the difference in cost of living in those areas. A digital strategist in New York City will likely charge much more for the service than a digital strategist in Wichita Falls, Texas or Youngstown, Ohio.
Research Standard Rates
Thanks to the Internet, professionals can now look up standard rates for the work they do, as determined by trade organizations. If this information isn’t available online, you may be able to find it through any of the associations that represent your industry. You’ll likely find that these rates run on the high side, since they’re geared toward representing some of the most experienced professionals in your field. They’ll be able to serve as a guideline for the rates you choose to set.
Determine Your Budget
Before you can concern yourself with how much your clients can afford, you should first determine how much you need to complete a job for someone. Over time, you’ll get better at estimating job costs, since you’ll learn exactly how many hours it will take you to complete a job. During this time, you’ll need to be able to afford business-related expenses required to support you while you work on the project, including office supplies and utilities. As you learn more about your business’s monthly cash flow, you’ll be better able to determine when you need to up your prices to meet expenses.
Many businesses selling services learn to emphasize value over cost. Sure, a client may be able to get the same service from a bargain-basement provider, but will that provider deliver a high-quality product on deadline? Or will the client merely be signing up for a few weeks of ignored emails and phone calls, only to be handed a substandard product two weeks late? If you can demonstrate a documented history of coming through for providers, as well as a portfolio that stands out from the rest, quality clients will be willing to pay what you’re worth.
Honor Loyal Clients
As you get busier, you’ll likely be faced with a variety of decisions about handling the new workload. Whether you decide to bring in help or scale back the number of clients you work with, you’ll eventually have to raise rates to pay for the difference. Consider implementing new increases for new clients and leaving existing clients at their current rates for a time. This will allow you to grow your business gradually, then eventually break the rate increase news to those who have been with you the longest.
Some businesses feel tempted to lowball a job to win it away from competitors. In some cases, slightly underbidding a project can help you win a relationship that can add value to your portfolio, helping you land better opportunities in the future. However, a lowballing strategy doesn’t work for a variety of reasons. One reason is that potential clients will often see a low offer as suspicious, leading them to assume that the provider isn’t as qualified as he says he is. However, perhaps one of the most compelling reasons to avoid lowballing is that it can put you in the red, since you’ll be working below your own costs for the duration of the project. Instead, bid what you’re worth and have faith you’ll be chosen over the competition for your abilities. If you aren’t, there are better opportunities down the road.
The process of setting prices is difficult. Chances are, an entrepreneur will underbid several projects as he’s learning more about his business. By setting a pricing policy early on and sticking to it, however, a professional can keep his cash flow strong without unnecessary stress.