Professionals who are dedicated to building great client relationships will benefit from value pricing
Many small business owners still adhere to the outdated approach of time-based billing, undercharging, and setting fees based upon what the competition charges; this is a situation in which the client and market drive your rates and not you.
Alan Weiss was the first to advocate Value-Based fees. He believes that the customer is the ultimate arbiter and judge of value. He states that there is no law or ethical imperative that says you have to charge the exact same amount to two clients for the same service. First, services are not always identical and second, their value to clients will always differ. This is a view I share. In this article I will show you the 7 steps to price by value and increase profitability within your company.
1) Know who you are working with.
Jeff Bezos is well-known for his famous quote, “Start with the customer first and then work backwards.” This is a great approach. It starts with understanding your ideal customer – their personality, needs and wants. Many business owners don’t know what their ideal clients are. Clarity is key. Working with everyone that comes through your door will only lead to frustration, tiredness, and a decrease in the quality of your service to your top clients.
2) Have a healthy self-esteem
A strong sense of self-worth, self-confidence and self-worth can prevent under-pricing, discounting at first objections and having to chase payment after work is completed. Nathaniel Branded, author of Self Esteem At Work, states that self-esteem is what we make about ourselves. It’s difficult to charge a fee that is beyond your comfort level, especially if it is not something you believe in or if you don’t have the confidence to make a difference to the client. Setting fees is all about your mind and self-esteem. Take some time to examine your self-worth and mind-set.
3) Make packages to promote your services
American Express offers black, green, platinum, and gold cards. They are all valued based on the services and value they provide. Your service offerings can be broken down into packages. Consider your customer and offer them different entry points to your services.
4) Establish clear goals, measures and values:
Value pricing is all about building relationships and helping clients to understand the benefits they will receive. It’s not about the process or how you do it. It is important to understand their goals from the beginning. You can ask questions such as “What are you trying to accomplish here?” or “Where are you at the moment?” to help you understand their goals.
It is a great way of assessing progress towards agreed goals by measuring it or using some form thereof. It is useful to ask the potential client how they will measure success of the intervention or project. It can be difficult to get clients to explain what success looks like.
Our decisions are driven by values. These are the intangible “soft attributes” that help us understand what is truly important. It is possible to ask them questions such as: “If you could achieve this goal, what would it do for you?”
5) What makes your unique?
Imagine you are leaving a meeting feeling confident but not sure how to make your business stand apart from the rest. Consider what makes your business or services stand out. Are you a professional with the right reputation or knowledge? These are the questions you need to ask.
It can be very stressful to set fees. It is possible that fees could be too low or high, which can cause anxiety and make it difficult to find work. This is where self-esteem plays an important role. It is okay to charge your services at a price that is higher than the customer will pay. However, it is also acceptable to set a lower price. Answer these questions at every opportunity to determine a price for your services.
* What price is too high for the customer to buy?
* At what price is the service considered cheap or inexpensive?
* What is the minimum price we will accept and would be willing to leave this business?
* What price is ideal for us – one that will give us great profit?
* What price would it cost if we could get it? This would ensure that the firm is a great success story.
7) How to write a winning proposal
It should not be a detailed exploration of the client’s needs. The proposal should clearly explain what your understanding of their needs is, how they will measure up and the business’ value. You can submit a draft of the proposal before you submit the final copy. This is done without adding the fees. Give them options for fees and not one fee in your proposal. If you only present one fee, they will not be able to move beyond yes or no. There are many options.
For service-based businesses, value pricing is the best option. Time-based billing is not good for anyone, neither you nor your clients. And most importantly, the focus is on the outcome and not how much it will cost. These steps can be applied patiently and will improve your self-esteem, client satisfaction, and profitability in your company.