There’s a fun little meme that has been doing the rounds on social media.
It touches on the idea of craftmanship and what a product or service’s true value is worth.
You may have seen variations, but the gist of it is:
Customer requests a service. Customer gasps at the price and contemplates doing the job themselves but … newsflash … they can’t!
So, they ask the service provider for help to:
a) learn the skills
b) acquire the tools
c) retrieve the materials
And so on until the customer decides it isn’t worth their time to do, what would likely be, a substandard job in comparison to what the expert service provider could achieve in less time.
The customer then promptly hires the service provider after the earth-shattering realisation that doing so will save them truckloads of money.
So, what are customers actually paying for?
Now, when we say craftmanship, we’re referring to any trade where the business or individual is offering a service that meets the needs of a customer. Usually it’s specialised.
Whether it’s a bespoke operation or a more run-of-the-mill service, it’s always interesting to hear customer or client feedback around pricing.
Perhaps interesting isn’t the right word? Sometimes it’s enlightening, at other times borderline offensive, more of than not though, it’s just a little deflating.
Usually, customers fall into one of three categories and, truth be told, the first seems to be the exception rather than the rule.
- Customer 1 knows the true value of a service and is more than happy to pay what it’s worth. Customer 1 will be loyal and, where possible, will return. Let’s call Customer Number 1 Big Bird.
- Customer 2 understands the need for outsourcing to a professional but is reluctant to pay what it’s worth. They’ll do it, but begrudgingly. Let’s call Customer Number 2 Mr Snuffleupagus.
- Customer 3 needs the service but refuses to engage based on a perception of exorbitant fees or (brace yourself) engages the service only to rebuke what’s been given based on the “I could have done that myself” argument. Let’s call Customer Number 3 Oscar the Grouch.
If you’re lucky enough to be in an industry where Big Bird is your primary audience, you’re in luck!
For the rest of us, it’s a case of navigating the minefield of trash cans that is client perception about a service or product’s true worth while finding a way to stay true to our bottom line.
After all, if you aren’t charging enough for your passion, your expertise and your service, there’s a very real chance your business won’t survive in the long term.
And, let’s be honest, we’re all aiming for a run to rival Sesame Street’s when we enter the wonderful world of small business.
Setting a fair price
The key to arriving at a fair price for your service is in establishing a price point that sets the tone for the quality you’re offering but won’t cripple your customers.
If it helps, think of yourself as a fashion diffusion line.
You have the sass and swagger of an exclusive designer, so you don’t come cheap, but your price is safely positioned within reach of the masses.
Still high-end but not unobtainable.
It’s about establishing a comfortable profit margin that takes in the reality of running a business and all that it entails and then sticking to that, unabashedly.
Top Tip: If you can be confident when it comes to talking money and communicate effectively what your client will get for their money, half the battle is already won.
If your own eyebrows reach for the ceiling every time you quote your fee, then it’s likely your customers’ will too. Be sure to keep a straight face and back yo’self.
That said – how do you know for sure that your prices are on point?
Evaluating your worth
When a client comes to you – the expert – to perform a service they aren’t trained or qualified to perform themselves, they are paying for more than just your time.
They are paying for you ex-per-tise.
While it can be difficult to put a price on your years of study, experience, trial and error, and straight-out awesomeness, you can carry out an evaluation based on two things:
- What the competition is charging, and
- What your customers are willing to pay
If you are miles ahead or miles behind your competitors who are offering the same or a similar service, it’s a good idea to reassess: ask around, research websites, access online data and paint yourself a picture of what other businesses look like.
We’re not saying you should be spying on your competition, but there’s nothing wrong with a little harmless incognito reconnaissance…
When it comes down to what a customer will pay, it’s much harder to accurately price a service than it is to price a product.
As most of us know, in addition to any material or labour costs, we need to factor in our overheads – so things like rent or office supplies and insurance.
On top of this, you need to ask yourself what YOU (and what you bring to your business) are worth.
To do this, it’s a good idea to write a list of the skills, qualifications and experience you possess.
This list might resemble the resume you would use to apply for your own job:
- Participates in professional development
- Member of various industry bodies
- Representative on industry boards
- Winner of multiple industry awards
- Strives to stay abreast of latest technology and trends
- Possesses years of varied or specialised experience
- Tertiary level qualifications or equivalent
- Passion for the industry and innate talent for what you do
And this is just a starting point … we’d be here all day otherwise, right?
It’s also wise to do some additional research and find out the net profit margin for your industry and use this as a guide when calculating your value.
While there is no magic solution – or magic number – if you can honestly answer the following questions in the affirmative, you know you’re on the right track:
- I feel confident in the price I’m charging and don’t cringe when I repeat my pricing to my client (or lift my eyebrows).
- I can honestly say I’ve assessed my current overheads and expenditure and factored in a percentage to reflect this.
- I have evaluated my skills, experience and expertise and added this to my price point.
- I have researched my competitors and what they are charging and feel confident that I’m aligned with similar services and/or products (it’s not spying, we swear).
- I have investigated the net profit margins for my industry and taken this into account in my own pricing.
- I have included a buffer to allow for things like business growth and equipment replacement (including the all-essential coffee machine).
- I can justify every dollar of what I’m charging and sleep well at night because I know I deliver what I promise and my clients benefit from this.
Communicating the value of your service
So, you’ve assessed your worth and are feeling more confident about what you’re charging, but how do you communicate this to clients in a way that assures them that they are the winners in this scenario.
Here are 10 tips for establishing your worth before, during and after a project:
- Be clear on what exactly the client will be getting (aside from your wonderful self).
- If what you offer is superior to your competitors, say why.
- Spell out the qualities and expertise that you’ll be bringing to the project. After all, it’s YOU the client is hiring, not just your service.
- If you have worked on similar projects before, make a point of saying this. Tailored expertise is invaluable.
- If you have access to data that demonstrates the value of your service, share it.
- If outsourcing part of the project is best-practice for your business, include this in your quote, estimate or pitch and explain why.
- Be clear about timelines and what you’ll need from the client.
- Make a point of checking in and keeping them updated. Tell the client you will do this.
- Be sure to measure results, if this is possible, and …
- Don’t be afraid to demonstrate these results – even before the jobs is finished (it ain’t bragging if it’s true).
The most important thing to remember is that, only when we know the true value of a service – and each of the elements necessary to produce a piece of work – can we truly estimate the cost.
Don’t be disheartened by all those Oscars out there. Keep your eyebrows down and go get those Big Birds!