Knowing Your Worth: Set the Right Price with Value-based Pricing
One of the biggest challenges of running your own business is knowing your worth.
It’s a slippery slope. Price too high and you step out of your customer’s comfort zone, charge too little and you undermine your worth and outcomes.
As a business coach and business consultant I find that most cash flow problems within a small business, where there is a consistent inability to turn a profit, can typically be traced back to one source. Pricing.
Prices are an essential part to your business model. Getting them right means your business thrives.
Setting the Right Price for Future Growth
In my business I can teach a client to create a six-figure income, however, my client is the one who takes that advice and does the work. So who gets paid? Without me, they would never be able to see their business flaws and correct their mistakes, but I didn’t actually reach into their business with a metaphorical spanner and make the adjustments, they did.
Most small business start-ups attempt to put a dollar sign on their time, say for example, $65.00 an hour. This seems safe, it’s easy to measure and it looks reasonable to your client. There is a danger through if you undersell and struggle to cover expenses. Scaling down your budget means valuable additions like staff, up-to-date equipment and downtime might be put on the backburner until things ‘turn around’.
If you are selling a service than you are selling more than your time, you are selling results. The result of losing weight, the result of gaining confidence, the result of doubling your income, the result of getting your marriage back on track. The value of the results is where your pricing should be set.
Unlike a solid product they can wear, hold in their hand or hang on a wall, your clients may not associate the benefits gained from consultancy or freelance work directly to you, or if they do, the value of that purchase can be forgotten over time.
Set the Right Price for Your Service
To help move your prices from time based to results based you can use a value-based pricing model.
In the case of value-based models you consider what the perceived value will be to your client.
The premium you charge will take into account your personal skills, experience and knowledge. This is what your client is buying, skills that they do not possess themselves as well as years of proven experience.
It’s important not to underestimate the value of what working experience brings. Experience in your field also generates a solid working knowledge of inside interactions, communications, industry terms, equipment and tools. You will also have a working history of your niche and be up to date on any new trends and practices.
As a small business you can build all this into your price, and increase your prices as your abilities and skills grow.
Knowing Your Worth: How to Price Yourself Correctly
By knowing your worth, you will know what results you can achieve for prospective clients, and will be able to go into any sales meeting with confidence, knowing that the client’s return on investment will far outweigh what they spend on hiring you.
1. Itemise Your Skills and Values
Make a detailed list of your skills and values. Include relevant education, training, contacts, experience and results you have produced for other clients.
With each of your skills and abilities list what value your client will receive.
You will also need to include any costs you incur to achieve your result and have those covered. If you find an outsourced price is not viable, consider replacing it with a different system, creating alliances with other business owners or referring some of your tasks out rather than billing them yourself.
2. Create a Portfolio
If you were applying for a position in a company, you would prove you were capable and eligible for the position with a resume. Offer your clients the same information by creating a portfolio that captures your relevant background, education and experience as well as a snapshot of your work history.
Also include testimonials from previous clients. Ideally use testimonials that address high value products and services.
3. Avoid Discounts
Discounts might appear to be a great way to warm people up to your services, especially if you are new on the block, however, it can backfire if questions arise about the validity of your original prices (if the gap is too great) or you can’t turn a profit because the discounts are too low, or run for too long.
Discounts require careful thought and consideration. You need to know your profit margins and only offer reductions within your limits.
As a general rule, wait for your client to ask for a discount rather than offer one straight up so you’re the one who sets the price.
It’s always best to add value rather than discount. Throw in a bonus product or additional service to bring up the value of your service and make it extra appealing at the original price.
4. Be Transparent
Explain your pricing system to your potential client. Give them accurate delivery dates and explain everything you expect them to do for their part in the project. Keep them informed of your progress, notify them if you encounter any delays and give them choices if you run into problems.
Remember to keep them in the loop for good news as well, don’t wait for a disaster, let them know that things are on track.
It’s a good idea to keep tabs on their business performance. As soon as you notice positive changes start noting them down. Refer to these when it’s relevant and appropriate, you’d be surprised how many times progress can go unnoticed. Keeping in touch with them after your service is completed is another great way of gently reminding them of your input to their success, their progress updates will also be great for your portfolio.
5. Be Flexible with Payments
Upfront payments might not work for everyone, so have some additional payment options on hand.
Consider offering incentives or discounts for upfront payments so those who can afford it will be motivated to take this option. You can also have service installments, one example that works well is part payment before commencement, part payment halfway through and final payment on completion. You will need some kind of guarantee that means they don’t have access to the final piece until full payment is made.
You can also look at organising direct debit payments that occur fortnightly. There are a number of service providers who can facilitate this at low cost.
One of the easiest ways to provide high value is to offer a money back guarantee. It means your client can purchase and feel safe about investing in something that will work. Again, we hit the same problem that results are not always tangible, which means determining if someone was ‘dissatisfied’ or not is impossible. Consider terms and conditions that include that the client must have completed their obligations and requirements in order to qualify for a refund.
Knowing your worth and having value-based pricing is crucial for the growth of your business. If you would like to learn more about how you can get this right from day one, book in a free strategy session and we will get you on the right path. Or even better, watch my webinar first!