The Pricing Conundrum: Figuring Out the Right Strategy For You
If you’re like me, as a new entrepreneur, I felt both excited and terrified as I tried to work through the initial labyrinth of defining and building my business. Often the most terrifying question from a potential client was, “So what do you charge?” Such a simple question but for the new entrepreneur it’s often complicated and intimidating one.
As a service provider, pricing is often particularly subjective. After all, I’m not selling widget or commodities that can be easily benchmarked. I’m selling my training and keynote speaking service -- a market value isn’t necessarily easily defined. It took me little bit of time to figure out this pricing conundrum.
Early on, I know that I fell victim to underpricing. Years ago I received RFPs (Request for Proposal) for training services from a large client organization year after year. For four years in a row, I was rejected. During a random lunch with a colleague, they informed me that they’d also received proposal rejections from the same client organization until they finally RAISED their pricing. They told me that the client had pulled them aside about a year prior and told them that their pricing was much, much less than the next lowest priced vendor. Her advice was to raise your fees to be taken more seriously. That year, I doubled my pricing and for the first time I was selected as a vendor!
Here are a few tips on determining the best price for your company:
Don’t undervalue your services. You should attempt to benchmark for pricing context (even though your specific price point may be different).
Ask questions. If your proposal is rejected, always ask why. They will often provide valuable feedback on why you weren’t selected.
Be flexible. If possibly, provide a fee range to increase the likelihood of your pricing falling within their budget range.
Know your restraints. Ask the client for their budget up front -- what they’ve paid for similar services in the past. You’d be surprised how often they’ll tell you!
And then there is the of course the tantalizing trap for new service provider entrepreneurs in particular is the proverbial request for a freebie. For the new entrepreneur this can be a tricky issue to navigate. For me, I early on welcomed almost any opportunity to speak or present (free or paid), as I viewed it as a great marketing opportunity. I was convinced that that my providing a “sample” would be more effective than any marketing collateral I could email, snail mail or post on social media. However, after several years (and fortunately steady success), I reevaluated the “free services ROI” and decided to scale back pro bono events drastically as they simply were no longer part of my business model.
Related: 7 Sins of Newbie Entrepreneurs
For those considering offering their services for free, keep these words of wisdom in mind:
It isn’t all about the money. Acknowledge that revenue isn’t the only benefit to be gained from providing a service. Exposure, marketing and relationship building are all valid benefits to be gained from providing a complimentary service. That said, you may want to specifically negotiate a selling opportunity as part of the unpaid service (e.g. pitching your paid service during the event, selling your products at the event or soliciting attendee contact information for your database, among other tactics).
Do it on your terms. Provide free services only when they meet criteria that you’ve predefined. In my case early on I was willing to reduce or eliminate fees for short duration presentations -- one hour or less – when given to large audiences within my target market.
Have confidence. Don’t provide a service for free, because you’re afraid to insist on being paid. I was amazed how many clients originally asked me to present for free but still booked me when I submitted quotes with fees instead.
Reevaluate periodically. Just because a particular pricing structure or business model has worked in the past doesn’t mean that it will continue to serve you well. Don’t be afraid to shift your price point as your business matures. If your fees haven’t changed in four years, you’ve probably left significant money on the table.
Related: Nailing Down the Perfect Price Point