Unraveling the fair pricing dilemma
Pricing your services can trigger internal alarm bells. Yes, you deliver an exceptional service. However, you question your fees. To reduce any tension, you aim for fair pricing.
Well, fair pricing is a loosely defined term. No matter how thoroughly you search, a standard formula doesn’t exist. Therefore, pricing remains uncertain.
Answer these two questions as you consider the options.
- Do you aim to break even or to earn a profit?
- Who decides what’s fair?
As the entrepreneur, you consider the time involved, all your costs and your desire to earn a profit. Maybe you factor in your competitors rates and what you believe the market will bear.
This approach, although widely popular, is a backwards approach.
Why? Your focus primarily considers factors important to you.
It’s like deciding to surprise your partner with ice cream. You know she loves chocolate ice cream. But, you bring home vanilla since it’s your favorite flavor. Your preference won out.
When it comes to pricing, your client, not you, decides what’s fair. Time, costs and profit margin are your concern, not your clients.
Start to view price from your client’s perspective. Step into your clients shoes. As you do this, you’ll realize he considers different factors.
Your clients’ needs, wants and desires differ from yours.
There’s one primary consideration which influences his decision to buy or move on. Your client needs to believe his gains from using your service is greater than your fees. Your client will happily pay your fees once he believes that’s true.
Gain insight about your client. It’s up to you to become keenly aware of your client’s pressing problem. During your initial consult, pay close attention to what he says. Then, educate him about your solution.
The buyer determines fair pricing
Some buyers seek a “fair price.” My clients interpret this as code for cheapest or lowest price.
Now if you believe a fair price is “what the market will bear” then how does this work with luxury or premium services?
For example, most people will never purchase a luxury car. The high price tag doesn’t mean the vehicle’s unfairly priced. The dealer realizes only a specific population will buy the car. Some of those buyers will even pay the full sticker price.
Most people won’t pay for premium services because they don’t highly value them. What if that’s not absolutely true?
Residential cleaning companies used to be a luxury item. Now, residential cleaning services are highly common. Busy professionals want a clean home, but prefer not to do their own cleaning.
In addition, a segment of the population only purchases top of the line services. Everything they do is high end.
A service out of your price range may be a great deal for someone else. Context influences fairness. Gain insight into the needs, wants and desires of your ideal clients.
How do your clients make spending decisions?
Is premium pricing unfair?
Consider this: A client calls you at 4pm on Friday with a short deadline for Monday morning. You quickly glance at your calendar and your weekend plans. Meeting the deadline forces you to rearrange your calendar, work over the weekend and push some other plans aside. You decide to double your regular rates for this high priority project. Is this unfair?
When you need an overnight delivery instead of standard you expect to pay a premium price. Especially, since it’s guaranteed to get there on time. In this situation, speed and peace of mind have greater value than price.
Clients judge and compare
How does your client determine fair pricing? He judges and compares. We all do this when making decisions.
At this point, you immediately think about competitive pricing. Your buyer compares your price to others. It’s the most popular way to compare pricing.
Comparing your rates to others isn’t the ideal option. This forces the client to choose between you, or another option. It’s a yes or no choice; either he works with you or he moves on.
A better alternative exists. Offer your client options about how they can work with you. Consider offering packages. Now, your client decides HOW to work with you instead of IF he wants to work with you.
Connect the dots
A fair pricing formula doesn’t exist. In fact, setting your rates is highly subjective.
The client, not you, decides if your price is fair. Your job is to convey your value. As you talk with your client, take the time to fully understand his clients concerns. Then, offer a solution. He needs to believe his gains are greater than your fees.
Answer these questions:
- Who, or what, is your client comparing you to?
- Is there something better for him to compare against?
- Are you attracting the right clients to your business?
- What steps can you take to attract your ideal client?
When my clients begin to connect the dots with potential clients, then their bank account grows. Take time to understand what your client values most. Once you grasp his most pressing concerns, then emphasize how your service solves his problem. Remember to educate him about the benefits he’ll receive. Here’s the bottom line – his gains need to exceed your price. That’s when your clients will decide your price is fair.
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