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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.

Professional Pricing

Professional Pricing

Value Pricing

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 You are not selling planks of wood so do not quote your price as if you are.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:

  1. Scope
    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.
  2. Customers
    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.
  3. Choice
    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?

pic: http://www.freedigitalphotos.net/images/view_photog.php?photogid=2125


Helen Cousins, a chartered accountant by profession, is a business mentor, trainer and consultant for a wide range of Irish SMEs, often working under the auspices of state agencies via her company Xcel Business Solutions. In a successful career spanning more than 25 years, Helen worked in accountancy practice for PricewaterhouseCoopers, and worked in Financial Controller and senior management positions in manufacturing industry, before starting her own consultancy for small businesses. Helen is also a self catering entrepreneur, operating her own self catering holiday home business in Wexford. She is a director and former Chair of the Irish Self Catering Federation, and she works closely with the tourist industry in Ireland. http://xbs.ie

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Comments
  • Thanks Helen, this is truly valuable post for anyone selling professional services. It’s clear,u00a0conciseu00a0and your advice is both sensible and practical to implement. It’s not often I don’t have something additional to add but I think you’ve said all that needs to be said.u00a0Brilliant post, well done!u00a0

  • Paula Ronan

    Great post Helen, thanks!

  • Mary Gethings

    Excellent post Helen.u00a0A clear, concise andu00a0informative piece on pricing. ‘If you are a professional, then you should price what you are selling, which is knowledge rather than time’ …..this really sends the message homeu00a0andu00a0 is something all professionals need to remember. Already looking forward to the next post, well done!

  • Great post Helen.u00a0 I love that you suggest pricing per job instead of time and show how to price it…with value!

  • Margaret Mara

    Great blog.

  • Marygethings

    nnExcellent post Helen. A clear, concise and informative piece on pricing.n’If you are a professional, then you should price what you are selling, whichnis knowledge rather than time’ …..this really sends the message home and isnsomething all professionals need to remember. Already looking forward to thennext post, well done!nnn

  • It’s a tricky area andu00a0a commerically sensitive one. I’ve tried to distill my thoughts here – glad you found it of use. Thanks foru00a0that comment Niall u00a0- put a smile on my face!

  • Cheers Paula!

  • Thank you kindly Margaret :)n

  • Mairu00e9ad, I think this post ties in with your last excellent post here on Bloggertone. “Drill First, Skim Next”. The more you specialise in a niche, the easier it becomes to be proficient in a niche and to add value to clients. Adding value is what cleints will pay for. Thanks Mairu00e9ad.

  • When we know what we are selling, it’s so much easier to sell it! Thank you very much for the comment Mary.

  • Absolutely!

  • Roisin Bell

    This is an interesting post Helen. Currently I charge for all of my work by the day (or half day) and I would find it very difficult to move to value pricing. Just because it’s difficult doesn’t mean I shouldn’t do it though! So I’ll think about it and maybe test it with some projects over the next few months to see how it works out. By the way, who can actually do 8 quality hour’s work in one day? I use Klok to monitor this and can only ever manage 6 (at best) so I never charge one calendar day as one billable day. Do you think clients are willing to accept this downtime? (breaks, interruptions from other clients, email checking, staring out the window time (essential now and then!) and just general less productive time) Am I being foolish or just inefficient? Looking forward to your next post, you’re giving me plenty to think about Helen!

  • You raise a few interesting points there Roisin. Value pricing can seem impossible at first, so trying it out with one project at first is a good idea. It takes experience to be good at pricing in this way, and you can get improve at value pricing with practice.Your worry about down time is part of the tyranny of time-based-thinking and pricing. Your clients would probably not be prepared to pay for your breaks, email and looking out the window u2013 if what you are selling them is time! However, you are selling knowledge and if you are value pricing, your client is paying for the finished job. So you only have to deliver the work in the agreed timeframe and focus on the quality of the job. A break for fifteen minutes or half an hour is therefore not of any consequence to your client. Actually, you are likely to do a better job if breaks (and thinking time) are part of your working routine. Consider this u2013 if you came up with an idea that would yield your client u20ac50,000, and that idea just popped into your head and took only 2 hours to implement, what do you think your client would pay for that? I think that you would find that they would pay considerably more than two hours of your time. This is where value pricing comes into play for knowledge workers. Thanks very much for your comments Roisin, they add nicely to the post.

  • Hi Connor – good, thought provoking topic! Although I can’t believe you made me calculate how many hours of experience I have focused on marketing – 26,880 or thereabouts! Feeling a little tired now….

  • Now there’s food for thought.  I think we all start out as generalists.  For some it is simply a matter of specialising in one or two areas.  The nice thing about being either is that you can with effort become the other if you choose.  To dabble in both, for business though, is not good, in my opinion.

  • Connor Keppel

    Agree completely. Stick to the guns! Although you could argue perhaps a generalist is a specialist in itself?

  • Connor Keppel

    Wow – you truly are a specialist so

  • Connor Keppel

    Love this Niall.  Very well put. Thanks for reading!

  • So Connor, taking what @nialldevitt:disqus said into account does that mean that someone is generally mediocre, specially mediocre, generally special, or…?  The combination with this could go on and on, lol.

  • I use Dropbox and find it super so thanks for introducing me to SugarSync, I’ll definitely be checking out. Also a big fan of mind mapping, it’s a great way to organize your thoughts.

  • I was/am happy with Dropbox, but that 2Gb limit is getting VERY close…….thanks for the heads-up!

  • Great blog its great to have someone point you in the right direction where new technology is concerned! Thanks Karol

  • You mentioned Freemind … I wonder if you’ve tried Freeplane? It is a fork of FreeMind by one of its original developers. IMO it is more usable, has more functionality, and a faster development cycle.

    But Xmind is better still and is also free. They have a Pro version, but the free version is already very capable. I have MindManager, iMindMap and have tried many others but Xmind is my go to s/w for 2D mind maps most of the time.

  • Robert Kubacki

    Helen,

    Thank you for your insights. I would appreciate your thoughts on the following:

    Competitive advantage consists of responsiveness to customer’s need, quality, innovation and efficiency. The pricing issue is about using price to achieve sustainable competitive advantage.

    What if there is no value – time pricing PROBLME to solve to achieve competitive advantage. Instead, what if their is a value-time pricing POLARITY to manage?

    A pricing polarity to manage (using Barry Johnson’s Polarity Management Model) would have positive and negative poles for both pricing by value and pricing by time. Several of the comments made by you and others provide data for what could be include in the positive and negative pole quadrants of a polarity map quadrangle for pricing by time and by value.

    Such a pricing polarity would require the management of a pricing polarity between time and value rather than the solving of the pricing question by choosing between the time consumed to deliver the service and the value of the delivered service (holistic service, bundled service, service components – skills or resources).

  • Congrats Niall! You’re on top. I also wanted to congratulate all the writers on your list. I’m looking forward to reading more posts from you guys. Keep up the good work.

  • Hi Barbara & thank you for comment and support, It means a lot. 2014 will be a big year on Tweak Your Biz.

  • Well, I suppose is the point is that I almost forgot what a great avenue TYB is to get the word out. The top post (mine!) was seen by over 3000 people in January alone. Well done you too & to everyone else that featured.




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