How much should you charge for services, and when?
Pricing is a question that comes up all the time, whether I’m talking to private clients about my own fees, or whether I’m talking about the optimum pricing for their own programmes.
So these are a few thoughts about what I’ve discovered about pricing over the years.
It includes me buying services as a client and agency.
It includes me selling services as ana agency, and it includes me selling both physical and digital products, often with a service element laid on top.
Rule 1 – hourly pricing sucks, for everyone.
It’s built on two things. Envy and fear.
Firstly the politics of envy from the buyer. Try selling at multiples of what they earn and you’ll see what I mean. Secondly, a position of fear and protection from the seller. If you’ve had too many projects go smelly, you want to limit that and hourly, or cost plus margin is usually how things go.
It also encouragees the buyer to waste time showing the buyer their “workings” rather than getting to the result. Timesheets suck the enthusiasm out of everyone.
So, payment by outcome is a far better method. The most basic way to do this is fixed price projects.
Again, the seller gets paralysed by fear. Fear of scope creep, fear of underestimating the job.
On the buyer end there are two main objections to this:
1) Could I get the same thing cheaper?
2) Is it worth it?
Let’s tackle each of these in turn:
**Could I get the same thing cheaper?**
Your job, in your sales and marketing is to knock this out of the way, not by convincing the buyer that they couldn’t get the same thing cheaper, but convincing them that they’ can’t get the same thing AT ALL.
There are a million ways to do this, but a unique positioning of a product which is to all intents the same as a competitors can do this. Your own approch, just you, your personality can be enough, without changing the product at all.
Certainly your track record, your reliability and the reduced risk that brings is another.
I cover positioning in The Mapped Method (http://themappedmethod.com) as it’s such an important factor in getting a prospect to choose you when all other things are equal.
The next question, **“Is it worth it?”** starts way back, before you even met your prospect.
Any consultant will tell you to sell your value, not your time, but few are clear about how to do this, so here we go.
Most consulting, marketing, or any expertise-based business, is usually a multiplier, not a fixed value.
Let me give an example…
If you’re a $1 million business and I come in and help you improve your conversion rates from 10% to 11%, I’ve made you $100,000
If you’re a $2million business, I can do the same work, but it’s worth twice as much.
**To sell on value, you need to find the people in the market to whom your skill is most valuable.**
Look for the upside of the result, not the downside of the cost.
Now, the other fact that most consultants conveniently avoid, is cashflow.
Typically, the value of an expertise-based business doesn’t begin until **after** the work is complete.
It takes the buyer a while to see the returns, but those returns may carry on for a very long time.
I usually expect a buyer who I develop a marketing funnel for to be able to use that as the core of their marketing for around 3 years. I have some who have trashed it in a year, and some who are still using the same process almost 10 years later, but 3 is about right.
So, a longer term royalty model starts to make sense, and a lot of my deals are structured like that. Something around 10% of whatever upside I create is about right.
I’m fortunate that the role I perform is highly visible in terms of those numbers so it’s fairly easy to measure.
If you’re a relationship counsellor for example, the financial value of keeping a family together is harder to see. But that doesn’t mean it’s not there.
Results-pricing does have it’s downsides though.
If you’re a small. cash-strapped business who finds the idea of paying purely on results a mouth-watering proposition, you’re not going to be a good buyer. I’m 99% certain you’re going to be a flake with no skin in the game.
I used to promote a lot of affiliate programmes and the number of small businesses who thought it would be their magic bullet was shocking.
I don’t work that way to dodge the cashflow issue that’s not why buyers agree to pay me on that basis even though they usually end up paying multiple times my fixed fee rate.
**I like royalties because it keeps everyone on the same page about results.**
If I’m getting paid on sales, I’m not going to get diverted by some administrative issue, or a vanity branding project that’s not sales generating. I’ll simply put my foot down in a way that the guy on the clock won’t, and I want clients with that discipline.
They need someone else to deal with the day to day mess that’s just the overhead of doing business.
I also want clients who I trust, who will keep paying the royalty a long time after I’ve stopped giving input to the project.
That’s why if **you** ask for that deal, I’ll say no.
I **offer** it when I know you’re right for it.
The next problem with royalty is the commitment form the buyer.
Spending money upfront has an effect on the buyer that it creates some urgency on their end to get things done.
**Spending money creates some pain and focus. **
On royalty-only deals, that focus goes away. Buyers flake out, they decide to not run traffic to the product and they’re not out of pocket.
So, there’s always a moderately painful upfront fee, and usually a minimum on the royalties or an element of flat fees to create that momentum.
So, to wrap up, here are a few of the elements you need to play with in your pricing model:
– The uniqueness of what you’re selling
– Your input in time and costs.
– The value of the outcome to the buyer.
– The payback period to the buyer, and when that payback begins.
– The motivation of the buyer to do thier work in acheiving the outcome.
– The ability of the buyer to achieve the outcome.
If you can understand that set of variables you’ll be able to pull together a deal that is a win for both you and the buyer, and when you do that, sales starts getting far more enjoyable.