Pricing is an Art AND a Science.
Yet in the online world at least, the focus is all on the Art side of pricing. The talk is all about value based pricing and doing what your gut tells you.
All good advice when you’re comfortable with your business, when you know your worth and the value you provide to your clients. As you grow a service based business you want to move away from simply charging for your time (even if it is in a package). You want to charge for the knowledge and experience you bring to the services you provide.
But when you are starting out it can harm your business. When you’re not confident and suffering imposter syndrome, it is easy to undervalue yourself. To set your prices so low that you are not making enough to pay yourself. So much so that you burn yourself out because you need to do so much work just to scrape by.
Been there, done that. I should’ve known better, I’m an accountant. I know all about working out how much it costs to offer my services and how much I want to earn. But I listened to the hype around value based pricing and got myself in a pickle.
Now when I’m creating new services I go the science route. I work out how much I need to charge to cover my costs including my time. I also do a competitor analysis to see what others offering similar services are charging. Not to check if I am charging too much as this is my minimum price. More to see if I am undercharging when compared with others.
Setting your prices too low can be as damaging as too high. If your price is too low then people think you aren’t good at what you do. It can send damaging messages about the quality of your services.
If my prices are high compared to competitors then it means I need to make sure my messaging is strong. Particularly, in explaining the outcomes I deliver and the expertise I bring. Or it means that the service I want to offer is not in alignment with my income goals and skills. Then I need to think about what kind of business I want to build.
I doesn’t always charge this minimum amount if I am doing a small beta test before launching more widely. But if I offer a beta price, I do two things:
- I let people know it is a special deal as part of testing the services so that people understand why the price is low.
- I put a rule in place that I am only going to offer the beta price to X number of people. Then I make sure I stick to this rule. No wavering even if my mindset is saying just one more beta client.
Once I am comfortable that clients are getting the results I want, I start to think about the art side of pricing. The value side of what I offer.
The science side of pricing is not perfect. It doesn’t take into account the value you provide, the knowledge you have built up over time nor your positioning. But it is a great first step to making sure you’re charging enough to pay yourself a liveable wage.