What is the right price for your service…?

In News by Charlotte Noble0 Comments

…value is money NOT time…

Selling a product is different to selling a service – no great surprise there…

The challenge is that plenty of service providers use the Product method of pricing.

Product Pricing is straight forwards – or at least it used to be.

Add together your material costs, work out your labour times, add a bit for wastage – then apply a “contribution” amount so that you cover your overheads and make a profit…

Service pricing, especially when you are delivering an intangible – such as Accounting, Design or Consulting is altogether more tricky…

Image Credit – Social Earth

Of course in any business, you have a “recovery rate” that you need to achieve to pay the rent and make a profit, but the beauty of a service is that you can price according to the amount of value you deliver rather than the hours it takes you to do it.

Imagine going to the dentist and he quotes you £500 per hour – is that a good deal…?

Of course not – this simply gives an incentive the dentist to drag out that root canal treatment for as long as possible – good for the dentist, not for you…

With my dentist I want a fixed price where possible – if she does a good job and it takes 20 minutes without any pain, then I am a happy bunny.

I don’t care about the hourly rate, and nor do your clients unless you let them…

For most of us and I include myself in that no one wants to hire us – sounds a bit harsh, but here is what I mean; using me as an example…

No one wants to hire a Business Coach…

What they are looking for is a Result, Outcome or Improvement – that is what people pay for. If as a consequence of my Coaching a company gets a return on investment of 10:1 – for every £ invested in my program they get £10 back – they will not really care how many hours it takes me to achieve it.

To avoid charging by the hour – and actually achieve a higher rate of return overall, simply consider not what service you offer, but the consequences of that service to your clients; that is what they will pay for.

Once you know what value you offer – decide how to package it for your clients. Should it be on a retainer basis, a package of services, % of results or a mixture…?

Your price for your service will be directly proportional to the value your clients derive as a consequence of working with you – not how long you spend with them or working on their business…

For example, we have worked out that for every £1 a business invests in a Coaching Program with us – they get between £12 and £47 back in return. So what does Coaching cost…?

Nothing, in fact, they make more money than I do so I should ration what I do rather than have to sell it.

Same applies to you – be clear on the value you deliver, do it consistently and charge accordingly…

Better still – when the same logic is applied to manufactured goods and they are delivered in the context of an added value service – then Value Pricing can apply here too. Look at Starbucks and Ferrari for clear examples…

…and remember to avoid hourly rates where possible…

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