Pricing for Profit. Part 4.
You are a professional. What are you selling? Are you selling time? Ask yourself if you measure the success of a professional by how long it took them to “do the job”. Many professionals charge for their services by the hour, because they believe that they are selling time. This is nonsense. Do you enjoy one film more than another because it took longer to make? I think not. Would you ask for a referral to a surgeon on the basis that he is the fastest at performing open heart surgery? I seriously doubt it.
What businesses seek is value. You may think that your client is price sensitive, but it is more likely that they are value conscious. If you are a professional, then you should price what you are selling, which is knowledge rather than time. If you itemise your hours and quote an hourly or daily rate, then you are leading your customer to believe that you are selling time. You have a limited “stock” of time, so you are placing a ceiling on your profits straightaway.
Pricing Professional Services
Professional services, like any product, need to be differentiated from that offered by competitors. You should focus in your quotations on value, results, deliverables and output. You are not selling planks of wood so do not quote your price as if you are.
If your pricing has elements like this:
Number of hours x rate per hour = total fee….
… then you are effectively asking your client to write you a blank cheque. That is a considerable risk that you are asking your client to undertake.
Fixed Price Agreements
You should quote a fixed price or prices for every job. “But how do I know how long it will take?”…I hear you cry! This is where experience comes in. Premium professional services come from knowledge and experience, not from whether it takes an hour or 100 hours to write a report. Anyone could write a report in an hour. Anyone could write a report in 100 hours. Which report is better? You cannot tell which report is better by just knowing how long it took to write it, can you? The value of the report to the client lies in its content, and the use to which that client can put the information in the report.
Pricing by Client
This brings us to another, most important, aspect of professional pricing. The client. The needs of your individual clients. It is entirely appropriate to price differently for different clients. It might take a web developer the same amount of time to develop a website for a business with a turnover of €100,000 as it would for a €1,000,000 business. Yet the website is likely to be of more value to the million euro business than it is to the smaller business. And your pricing should reflect that. This is not “ripping the client off” because as long as each client is getting value for what they are buying, you will have satisfied clients.
Professionals are knowledge workers and their selling intellectual capital, so you should price accordingly. Throw away time sheets! They measure history, not knowledge nor innovation nor results. Your client does not care how long it took you to do something; they only care if they got value.
Professional Pricing Tips
If you are a professional selling knowledge, skills and experience, not time, here are some factors to consider when pricing:
You must fully and accurately document the scope of which were quoting for. Then, if you are say, an accountant, you would quote on the basis that the books and records are in good order, if that is what you have been told. If this proves not to be the case, you will not proceed with the job at the agreed fee, but will request that the client either amends the books and records, or alternatively you will quote for the doing the corrections in-house.
Different customers merit different prices. If you are no longer time focused, you will be results focused, and you will make sure to at least meet, and probably exceed, customer expectations. Value pricing forces you to become a better project manager, and to deliver a top-class project. This is a win-win for both you and the client. You are actually removing risk from the client, and you can charge a premium that.
You can give your customers a range of prices, with different service levels. You could for example, take account of project deadlines, with tighter deadlines commanding a higher price. Or you could offer an unlimited access option, whereby they can ring or e-mail you for advice as part of your contract as much as they like. This could be your “Platinum” service level. It also highlights to the customer that if they have opted for another lower-priced option, that they can’t just ring or email you whenever they like.
What do you value?
Value pricing is all about delivering value to the client and being paid for value, not hours. The client does not want to pay for efficiency, but for effectiveness. If you continue to charge for hours, then you cannot possibly expect your client to appreciate the value of what you do. If you charge for hours, then you are clearly only valuing hours, and everybody has eight hours in a working day. What value do you bring in those eight hours? Do you think you can value that?