For entrepreneurs, pricing is a four-letter word, especially when you are a service-based company.
Since starting my business, figuring out what to charge my customers has been my number-one problem. It is challenging to put a price tag on intangible items such as connections, knowledge and time. Whereas if you are producing a product, setting a price seems a little bit easier because you have very clear numbers to take into consideration, such as cost of manufacturing, packaging, shipping, etc.
When you provide a service, you have to find an intersection between where you feel adequately compensated and what is the highest amount your clients are comfortably willing to pay.
I know, easier said than done. However, here are a few things to think about when it comes to your pricing structure:
Stick to your rate. When I first started fifteen media, I used to accept any rate that new clients were willing to pay me. My mentality was having some work is better than none. I quickly learned that this is no way to grow a business. Working with these lower-paying clients takes away time from higher-paying clients. You should aim for high-quality clients, rather than quantity.
With that being said, Stephanie Abrams and Courtney Spritzer, founders of Socialfly NY, point out situations where you can waiver on your rate: “Stick to your pricing and only make accommodations for strategic business reasons, [which] may include putting a household name on your resume as a client you have worked with, breaking into a new industry/sector and building a new relationship.”
Know what your price is saying about your business. Daniel Lieberman of Cory Vines says it best: “It is important to find the price which sells both value and quality. You don't want to price something too low and people think it's poor quality. Find the price which customers know they're getting value when purchasing your product.”
When providing a service, if you don’t charge enough, you are saying that you aren’t the best at what you do. You don’t want people just to hire you because you are a bargain!
Raise your rates accordingly. Abrams and Spritzer explain, “Don't be afraid to raise your pricing as your company continues to evolve and build a positive track record.”
As I started to build a more impressive portfolio, I was able to start charging my new clients more. Once I had enough credibility, I also went back to my original clients with a new rate, and most of them agreed to the higher pricing structure because I had been able to prove myself.
Be realistic about costs. We all want to please our clients and show them that we can get the most results in the shortest amount of time. However, the reality is good work takes time and resources.
Alex Weiss, partner at CA Creative, asks herself the following questions when determining the price for new project: “What are CA Creative's roles and responsibilities each month? How many people from our team will it take to execute this scope? How many assets are we delivering? Do we have to pay for additional resources such as video production or monitoring tools? Clearly defining the answers to each of these questions allows us to determine a fee structure that makes sense, and set clear parameters as to what each service includes.”
If you take the time to really think about what will go into the project, you can give your client a realistic quote. There is no better way to anger a customer than finishing a project and sending an invoice for an higher amount than you initially agreed to.
Research industry standards. When setting your price, you have to know the ins and outs of your industry. For example, in PR, I pay attention to the amount PR firms are charging their clients, the hourly rates of freelancers and the price of industry tools, such as Cision. You should take all of these into account when deciding on your rate.
Walker, of SweatGuru and Fit Approach, adds, “It's important to know how your competitors are pricing their product, but even more importantly, why they are pricing their product that way.”
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The author is an Entrepreneur contributor. The opinions expressed are those of the writer.
Rebekah Epstein is the founder of fifteen media, an agency that works exclusively with PR firms to get more media placements for their clients. She specialized in lifestyle, technology, healthcare and business. She also blogs about the ups and downs of gen-y entrepreneurship at NeonNotebook.