Don’t Give Away Your Profits
Pricing pain. We’ve all had it. What’s billable? What’s value add? Do I need to discount? If so, how much?
Most of the time, business owners worry that they’re charging too much. They worry, “Will I price myself out of the market?” and endlessly compare themselves to competitors.
Surprisingly, in my work with entrepreneurs – especially service providers – the opposite is more likely. You’re not charging enough.
Earn, Don’t Burn
In the quest to establish a reputation as a go-to provider, many aspiring business moguls trip up and give away potential profit. Sometimes this is a conscious decision, like “loss leader” offers to get people in the door, but often it’s not.
Profit simply seeps through the cracks, unnoticed, until the pain is felt in the bank balance and you wonder, “How did that happen?”
If your burn rate – the speed at which you spend cash – is higher than your income, there’s a big problem looming. You can fix quickly by re-focusing on earning based on value, not fear.
Pricing for services can be confusing, and even business owners who think they have it down pat often discover that they could be making a lot more money. Why? They over-compensate for their insecurities.
Before you get defensive and think, “I’m not insecure!” consider this: What do you give away for free just to convince yourself you provide exceptional value?
When was the last time you did extra work, allowed a little scope creep into a project, or proactively offered to help a client without charging them a dime? (Freelancers, this is you!)
Was that decision really driven by fear? Fear that your client wouldn’t come back, that they would bicker over an invoice, or worse, tell everyone your services were overpriced?
The profit service providers let slip through their fingers could turn into revenue if customers understood what they were getting. Frequently, all those little extras are unseen or un-noticed by buyers because you don’t show them the exceptional value they receive.
As a service provider, it’s your job to ensure that buyers understand the value you provide. This might take the form of:
- Proactive alerts about relevant issues
- The exclusive ability to tap your knowledge and experience
- Access to a community of peers that only you can offer
- Periodic check-points that could potentially save them big money
- Advice and insight over and above the routine deliverables you provide
When highlight the value of these items, it’s easier to justify your compensation – whether that’s an hourly rate, project fee or retainer.
When you’re selling products, pricing is relatively easy. If your offerings could be considered a commodity or comprise items that come from a manufacturer, you’ve got benchmarks. You can quickly compare market prices or rely on the MSRP as a guide.
In that case, you could be leaving money on the table if you don’t account for the added value you offer. What’s the ROI customers get from things that differentiate your business, like:
- Extensive industry or product knowledge
- Convenience (location, online accessibility, home delivery, etc.)
- Favorable return policies
- Flexible payment options (cash, credit, financing, Bitcoin)
- Proven staying power (you’ve been in the market a long time, and you’re not going anywhere)
- Trouble-shooting and repair
- Advice on complementary products and services
Any of these items can justify a higher price – or at the very least, not discounting. The trick is that your customer need to know about what makes doing business with you a better choice than working with a competitor.
Do you effectively communicate this value? Can you quantify it for buyers?
Mine for Value
Whatever business you’re in, it pays to take some time to assess your value. A quarterly checkup can ensure you haven’t overlooked an exceptional offering disguised as a freebie. It can also help you identify new or hidden sources of value that you need to share with your buyers.
To do this, look at recent projects or sales and explore what was actually provided versus what was agreed. Did your team work extra hours helping with an installation or coordinating an interface with another solution? Did you spend time helping a client understand their options or evaluate alternatives?
When you go through this exercise, you’ll probably find at least 2-3 things that you need to point out to future buyers as additional value they get from working with you. You may also discover things you’ve been doing for free which could become new services, adding top line revenue and increasing profits.
Photo credit: Dana Rothstein | Dreamstime Stock Photos