Pricing yourself and your services isn’t easy. There are many factors including customer demand, brand cache, experience, and supply.
When we price ourselves appropriately, we create a positive sum game with our customers.
Appropriate pricing says, “If you pay me, you will get more out of this than I get, and yet….I will have more than enough to continue with this game we’re playing.”
In this world, the buyer and the seller both win.
I get pay the restaurant some small % of my wage, and I get the steak, potatoes, spinach, beer… all without spending the 3 years raising the cattle, planting the potatoes, brewing the beer…preparing the meal etc. etc…
By being in profit, the restaurant can’t continue to exist, continue to pay its workers, and continue to reinvest in more options and varieties that customers might want.
When we underprice our services, we put ourselves at a structural imbalance relative to the customer.
This forces us to constantly play catch up.
This structural imbalance cannot hold for long, at some point it breaks...
If you aren’t able to charge a rate that can work for your lifestyle, we are keeping the market from getting more of what it wants.
If you can’t do it sustainably, both you and the customers lose...
So how do you set prices as a service?
Pricing might feel easy if you start with your own costs. But services aren't like products with fixed costs.
We need to instead put ourselves in the shoes of a customer.
Customers have no fixed view of what they should pay for something.
This is why some chocolate bars are $2 and others are $10. Some cars are $20,000 and others are $80,000. Same with services – some are $500 for website copy, others are $5,000 or $50,000.
Because customers have no fixed view of what they should pay for something... that means we buy based on a perception of value.
Selling and business is about change.
So, the question for the customer is really...
"What is the price we would pay to have this change in our life that we're seeking?"
As as service provider, we want to price ourselves in relation to how impactful the change is that we create.
We do this by understanding specifically what value is created from the work that we do.
It's not, "What is the work that we do, and how many hours does it take to do it?"
Instead: "How does the work that we do change the business or life of the person we're serving?"
As an example – designer may sell design services for a new website.
One way of pricing this is based on "materials" you're needing. Ok... how how much is photoshop?"
This is clearly not right.
Another way of pricing would be hourly..."How long will this take me?" This is also suboptimal.
These methods for pricing put you at an imbalance because these prices are fixed... whereas as we just discussed above is that value for the customer is not fixed.
So what do you do?
The way to price services is based on a shared understanding of how much value the change you create from your services produce.
So, instead of the hours it takes to make a website...
We look at the questions of impact of what would happen if the website was to be built and shipped online.
We could ask our customer questions like...
- "How many customers will this website generate per year?"
- "What % increase in conversions will the website create?"
- "How does the brand change or reposition because of the website?"
- "How many $ in advertising are spent per month driving people to this website?"
These questions help us assess the true value of the work we're providing.
In the context and lens of helping add customers, increase conversion, improving ad spend, etc... we finally can come up with a fair price based on the specific, relative value of this project.
This type of dialogue is what creates a collaboration between the customer and service provider.
It also creates balance – because now both your service and the customers benefits are aligned.
The best way to price your services is not hours, is not costs... it's to consider the value of the change you create for your customer.
That value is relative, and comparable to the value you create.
I'm curious; what are your biggest hangups around pricing your services?
I would be curious to hear, and continue to write on this topic.
As always, let me know if I can help,
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