“Price is what you pay. Value is what you get.”
– Warren Buffet
This has been a good year; but although business has picked up, and many especially in services industries are busier than ever, they’re not significantly profiting from their efforts.
One factor that could significantly influence that is the way you price your product – in other words, value vs. time spent. In service industries it can get tricky.
We’re not retailers who can push products, run sales and promotions, host events and do giveaways. If we did, we’d end up giving away the store.
What can you do to increase your profits when the product you sell is yourself?
Let’s take a look at typical pricing.
Most consultants charge fees based on an estimated level of effort, plus a standard little ‘bump’ to cover the unexpected.
Some jobs may take less than the allocated hours, but most don’t, and while you deliver the same value to your clients in both instances, it often goes unrecognized.
From the client perspective, they don’t always recognize that your services are not only based on time spent, but incorporate the years of experience and expertise that allows you to provide the service.
While the client whose job was completed early might think he overpaid for work so quickly produced, the client whose job took twice as long paid half the price he should have, will likely feel that he’s made out like a ‘bandit.’
At the same time, it’s also possible that client who believed he was overcharged might also feel that he didn’t get his money’s worth and the client whose work took longer to produce might feel you don’t meet your deadlines.
In both scenarios you run the risk in both scenarios, they the client may begin regarding you as a commodity. Despite the fact that both clients received the same high quality work, they likely will remember you by their perception of price in relation to value – and the value will be secondary. You, on the other hand may start to wonder if you’re really undercharging or overcharging clients based on the same criteria.
The solution is clear. Change the perceptions you have of yourself, and those your clients have of you, by setting prices based on value received.
Many business miss golden opportunities to make or increase profits, because they lack the courage to set prices based on value, rather than time. By extension, price is determined by perceived value – the benefit the client perceives he will get from working with you. Included in that is how you differentiate yourself from your competitors and the successful results you’ve provided to other clients who have worked with you. It’s your job to make clients believe that buying from you is like making a long-term investment – one they will reap the rewards from year after year.
You can do that, if you remember these things.
- How you present yourself determines how people think of you.
- If you present yourself as a product, people will see you as a product, and as such, it gives them leverage to haggle over your price. You become a commodity – just another business expense they will try to pick up as economically as possible.
- On the other hand, if you present your services as an investment, you gain value and become an asset. The client understands that his worth increases with your counsel, and money is not an issue.
- As you make the transition, focus your conversations on understanding client needs and demonstrate the value you provide compared with your lower-priced competitor. Remember, most clients care about their bottom line. It’s up to you to demonstrate that the money they pay you will increase their bottom line. Clients have no problem paying more when they believe the perceived value is greater than the amount paid.For those of you who have a difficult time quantifying the seemingly intangible, let’s take an example. Remember what makes people want to people buy:
- If you complete a job in an hour that others with the same baseline knowledge struggle with, your experience. mindset and emotional intelligence contribute to your worth. It should be built in to your price. If your talents and experience give you the capacity to anticipate and solve problems for customers, you have a unique perspective that adds to your worth. You are not selling a product. You’re selling your benefits. You’re selling your value to another person or business, who in turn will reap the rewards of doing business with you.
How do you put a price on value? Clients want to be shown. Focus on the benefits.
- Price has little to do with money, and everything to do with value received.
- If they trust you, they will buy.
- The key to trust is empathy. Always put yourself in the clients’ shoes. What problem can you solve for them?
- The more they pay you, the more they love you. The less they pay you, the less they respect you. (Perceived value is enhanced by a higher price).
- Have a conversation. Negotiate. Get a financial commitment before beginning any work.
Remember, time is finite. We have just so much of it. Value, on the other hand is infinite, and consequently, is priceless.