What Price Should I Charge for My Work?
I find that “What price should I charge?” is one of the most stressful – yet overlooked questions on a business owner’s mind when they approach Ellevated Outcomes. Outwardly, they’re panicked about needing more sales, hiring more people, and adding more products. Yet they’ve passed over an important lever that can make a material difference in their business and should be done before they make any other changes.
Especially when someone owns a business that sells services (in lieu of physical products), often their personal identity is knitted into the business identity. This creates some real psychological issues around worthiness and value when we’re thinking about pricing. But it’s imperative to pull apart this tapestry and be objective about the value that the business offers its clients.
When I’m reviewing a client’s pricing strategy, I like to look at it from 2 angles: “outside-in” and “inside-out.” The outside-in is about perception and positioning: how do the market and clients view the company and its offer? The inside-out is about profitability. What does a company need to charge to make profit and stay in business?
Here are 3 questions that you can use to create or revise your company’s pricing strategy:
1. Who are the colleagues you want to be counted among?
Who are examples of other companies, who do similar work to you, to whom you look up? You may not know them IRL, but you have reason to believe that they have a solid business, reliable client base, and you regard their work with admiration. What do they charge?
My reason for asking this question isn’t because I endorse being a copy-cat. It’s because you want to position yourself in a similar camp – because for good or for bad, perception is reality.
2. Who are your target clients, what do they value, and what does “expensive” and “inexpensive” mean to them?
This is one of the many reasons why we all must have a focused image of our ideal clients. We want to price in a way that’s positioning value in their eyes. After all, value is an extremely personal and relative thing.
Here’s one thing that I see businesses get wrong over and over again: they’re scared to raise prices; but in fact, being priced too low is preventing them from winning over target clients. If a company’s target clients are demographically wealthier people, the wrong price can make these people perceive the product as cheap, even if it’s not. Of course, the inverse is naturally true too.
3. Lastly, what does it cost you to product your service (or product)?
When we kick off work with a client, one of our first steps is to complete an in-the-weeds and wildly detailed profit analysis. For a service-based business (like interior design, personal training, financial planning, etc.), we calculate profitability by breaking down client and product segments, then for each, divide price charged by time spent.
For these types of businesses, I think of time as inventory. Cost of goods sold is time. (If you’re an accountant, please don’t be mad at me, I know that these are actually not the same when we’re looking at a P&L and balance sheet. But humor me, as it works for this exercise, I promise :)…)
Then, if there’s a real cost of goods sold – because there is a tangible product, subcontractors do work for you, etc. – we can layers this into the equation as well. The landing point is to compare your prices to what it costs to produce the service.
These three steps are a form of triangulation: we examine pricing from the vantage of the industry, our clients, and our what our business needs financially. In the middle of those 3 points of our triangle, is the answer to “What price should I charge?”
Next Steps:
Although simple on the surface, done well, this isn’t a zero-fuss exercise to be rushed through in an hour. It requires behind the scenes preparation. Before you sit down to map out your triangle, know your…
Hopefully, this Building Your Business Plan series is all starting to come together now, and you can see: there’s a method to my madness!
When you’ve done this preparation and are ready to go through steps 1 through 3, work through each of them on a separate document or Excel sheet.
For each question, end by summarizing a simple “so what?” For example, the “so what?” to question #2 may look something like,
My target clients are _______________.
They value _______________.
So to them, an expensive price for this is $______, and an inexpensive price is $______.
Therefore, if I’m answering this question through their eyes, the price for my this product / service should be $_______.
Once you have your 3 separate “so what?”s and corresponding prices, compare them. Choose a point in the middle as a starting point. Then, test, learn, and dial in your pricing over the next 6 months.
