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

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?

PRICE

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.

SERVICE

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.

Price Resistance

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

---

Three Small Business Secrets to Getting More Billable Time

As small business owners we're in business to make money... Read More

Nevada Incorporation: The Advantages of Incorporating in Nevada

Incorporation in Nevada has become an attractive option for savvy... Read More

Choosing A Business Thats Right For You

Q: I really want to start my own business, but... Read More

Small Business Opportunities And The Tens

You may find this Newsletter a little long winded but... Read More

Forming a Corporation ? Investors

You've come up with the best idea since sliced bread,... Read More

Do I Have to Do EVERYTHING Myself?!

The air in my client's office nearly crackled with her... Read More

Web Based CRM Systems: Get Mobile; Get Results

Everyday more web based companies enter the business scene. The... Read More

Top 10 Record Keeping Mistakes Business Owners Make (and How To Avoid Them)

If you interviewed business owners of failed businesses, a majority... Read More

How to be Annoyed and Make Money

When do annoyances in a relationship become too much to... Read More

Taking Stock

Back when I owned an inventory-based business, one of my... Read More

Going Public: The Process for Small and Mid-size Companies to Go Public

It's the dream of every person who starts a business... Read More

How Is the LEGAL SYSTEM Dishing Out JUSTICE in Your Town?

Thankfully, most of us will never find out. That is... Read More

Small Business Success: Thriving During Change (And Landing On Your Feet!)

If I had $1.00 every time I heard someone say... Read More

Due Dilegence 101 Or What You Do Not Know Can Kill You! - Part 1

Introduction: This article is written as a general discussion on... Read More

Build Your Small Business by Building Relationships

-- The One Pager Shortcut Series --People do business with... Read More

50 Ways to Save Money

There are countless ways to save your business money. Unfortunately,... Read More

Professional Car Care Businesses You Can Start

If you are in the professional car care business you... Read More

How to Prepare for Your Start-Up Venture!

When you awoke this morning, you found yourself buzzing with... Read More

How to Profit from a Concrete Roof Tile Business

Concrete Roof Tile Business: During the 2004 summer season, storms... Read More

Dynamics of Daylight Savings Time on Service Businesses in the United States

The Dynamics of Daylight Savings Time changes the way we... Read More

Franchising Companies Relationship Strategies

Franchising Corporations need to maintain an iron fist when it... Read More

Motorizing for Profit - The Craftsmen Have Left the Building

In the summer, I can't drive two blocks without seeing... Read More

Creative Metrification - A Technique to Improve

Some things in business are relatively easy to measure ?... Read More

Small Businesses With Work Trucks; A Warning

If you are a non-operator owner of many work trucks,... Read More

Buy a Flower Shop: Serious Considerations

You've always liked flowers and you think the idea of... Read More

Pressure Washing Heavy Equipment

One of the best ways to make money in the... Read More

Eight Ways To Improve Your Companys Cash-Flow ? TODAY!

Cash is the lifeblood of any business. As humans need... Read More

Freelance Tips: How to Cope with Spring Fever When Theres Work to Be Done

We all know how glorious those first warm days of... Read More

Retail Customer Opportunities for Pressure Washing Companies

Pressure washing companies must look for customers in the retail... Read More

A Look at Small Business Incorporating in Florida

The choice to incorporate a small business in Florida has... Read More

Image of Your Franchise Automotive Outlet is So Important

Image of your franchise automotive outlet is so important. Some... Read More

Is Brick and Mortar A Passing Fad?

Q: Is the online world the best place to sell... Read More

Why are Reverse Mergers Often the Victims of Short Sellers?

There is a great deal of abuse going on in... Read More