Forbes answers one of the most common questions received from live audiences and emails, how to price services? The following steps can help uncover how to price your services and in turn increase revenue:
- Price anchoring
Price anchoring starts with a high price, and then offers the purchaser a discount; this creates the illusion of value. While this approach can be very effective in the business to consumer (B2C) environment, when selling services, the buyer might think “What’s wrong with their service if they are discounting it?” If you win on price today, you’ll probably lose it a year from now on price. If you win on value, a competitor with a lower price might not be enough to pull the client away from you.
- Hourly or project pricing
Recognize that when you charge by the hour, you are selling effort not results. Hourly billing is the fastest way to turn your services into a commodity. Realize that when you charge by the hour, the client pays more when you are less efficient. The faster you deliver what they need, the less they pay. That’s backward. Nobody ever sat at their desk hoping for 12 hours of your time. Clients want results. If your business allows you to focus on results with your client, then manage your interactions to focus on results instead of resources.
- Low bidder and change orders
If you know the client is considering alternatives, you might be tempted to propose a low, fixed cost. You’ll win as the low bidder.Then, once they need changes, you can charge a premium for the additional work. The problem with this approach is that you are consciously engaged in a bait-and-switch business model. It’s tough to build long-term customer loyalty when your client feels they always have to guard their wallet. The way to get out of this trap is to discuss (early – before the procurement comes out) the notion that their results matter. Not every client will appreciate your approach. But, the ones who do will want to figure out how to work with you.