Leaving Money on the Table
The 4 hour work week is a catchy book title. But, that’s not the reality for most entrepreneurs. They’d happily trade in a sixty hour work week for a forty hour week. Fortunately, a solution exists.
An hourly rate means working more to earn more. With that pricing strategy, you gradually give up family time, social time with friends or workouts at the gym. Keep reading if you’re tired of sacrificing your personal life and leaving money on the table.
Before we dig in. let’s define cost, price and value.
1. Cost is the amount required for you to provide a specific service. Lower rates mean lower profit. When you sell your service below your profit margin, you lose.
2. Price is the amount of money that changes hands between a buyer and seller.
3. Value represents the highest dollar amount that someone’s willing to pay for your service.
Let’s move onto the pricing pitfalls which leave money on the table.
1. Hourly pricing. The billable hour means you trade your time for money. Although it’s the easiest to implement, it leaves lots of money on the table because it overlooks your expertise.
Sue’s ready to sell her company and consulted with Mike about her exit strategy. She figured $1.5 million was a fair price. Mike’s valuation estimated her company was worth $8 million. She finally sold the company for $6 million.
Because Mike charged Sue for his time, he earned $2000. Consider that she made an additional $3.5 million from the sale, his advice had greater value than $2000. Would you pay $100,000 to consult with an expert that could lead to an additional $1 million in profit?
2. Competing on price. Doing things differently than others requires courage. So often I hear that clients won’t pay higher fees. Especially if no one else charges that much.
Competitive pricing is a poor pricing strategy. Although you win new clients, your profits decline. In fact, price competitions train your clients to focus on price and overlook value.
3. Give away work for free. Entrepreneurs frequently offer a complimentary consultation. Initial consultations primarily answer one question. Are you and this potential client a fit for working together?
Many consultations mistakenly turn into free sessions. Because you want to help, you immediately get to work. Well, you haven’t been hired for the job yet. Plus, it’s very confusing when someone you thought you had a great connection with decides not to hire you.
4. Not enough credentials. Too many entrepreneurs, whether new or seasoned, downplay their credentials.
When Diane left her 9 to 5 bookkeeping job, she charged $50 / hour for her services. She casually mentioned that she taught as an adjunct professor for the local college and received an award for her work.
Well, she now works 60-70 hour weeks. When I asked how many years she’s been a bookkeeper, Diane proudly said 25 years. Diane’s pricing reflects how long she’s been a business owner. Her rates overlook the years she’s devoted to bookkeeping.
5. Negotiate on price. Naturally, your clients want the highest value for the best price. Confidence dwindles once you hear an objection about your rates being too expensive. You then cave in on price.
Your knee jerk response lowers your value. Learn to stand firm on your price. If someone doesn’t want to pay the price you’re asking, then negotiate features. You can remove some options to lower the price.
Experienced negotiators set a “walk-away price” beforehand. Like poker, sometimes you need to decide when to fold your hand, stand up and walk away from the table to avoid losing your shirt. Read full post. #getpaidwhatyoureworth Click To Tweet
Experienced negotiators set a “walk-away price” beforehand. Like poker, sometimes you need to decide when to fold your hand, stand up and walk away from the table to avoid losing your shirt. Otherwise you may bargain away all your profits. Or, lose money to close a deal and ignore the signals to stop.
6. Don’t want to brag. No one likes a person who loudly brags about their greatness. But somehow potential clients need to figure out why they ought to work with you instead of someone else.
If you don’t answer those questions, then they’re likely to move on. Bragging isn’t very client attractive. However, potential clients need information. Consider a variety of ways you can educate them.
7. Unsure of the problem you solve. Most entrepreneurs get this wrong. I bet the problem you think you solve differs from the problem your clients want you to solve. Connect your solution to their problem. Then you gain recognition as a specialist and no longer need to compete for business.
Now you know the 7 pricing pitfalls. Which one stood out for you?
Start with One
Decide to finally plug up your money leaks. Start with one. Then, consistently make adjustments as new ones arise.
Remember to constantly lead with value. Connect with your value, value price your services and offer value conversations to potential clients. By doing this, you join the growing ranks of value based entrepreneurs. This approach receives recognition.
Follow these recommendations for your business to be successful, and grow while keeping your passion alive. Are you tired of doing work for free because you don’t know how to charge for it? Discover how to get paid what you are worth and attract clients who understand your value. Right NOW claim your FREE RESOURCE to create value based pricing.