TT#027 - 3 common pricing mistakes (and 3 better options)...Sep 06, 2022
How you price your services has a lot to do with your beliefs about money, the work you’re doing, and your own self confidence.
Depending on what those beliefs are, they could lead to some bad pricing habits that cost you hundreds of thousands, or millions of dollars in income over time.
In this week’s issue, I’m going to share 3 incredibly common pricing mindsets to avoid. And I’ll share 3 better ways to think about pricing.
3 Pricing Mindsets to Avoid
Here are 3 of the most common pricing mindsets that cost you money and fail to create alignment between you and your clients.
“What do I need to make?”
I get why this is so tempting. You’re working the math backwards from what it takes to be financially satisfied.
The problem with this approach is that it buries the details, like how much value you’re creating for your clients.
When you price your services based on how much it takes to cover your expenses, it’s like buying a car based on the amount of the car payment.
It’s a limiting mindset that usually means selling what you deliver for less than it’s worth because it’s “good enough” to get by.
That’s not a solid business strategy.
“How much can I charge?”
This is actually the traditional consultant’s pricing model. It goes something like this: conduct discovery, find out how much work you think you can sell, and take a shot at selling it for as much as you possibly can.
The problem with this approach is that it puts you in a taker’s mindset. You’re trying to determine how much you can get from your clients rather than how much you can give.
When you start to evaluate clients based on how much you can squeeze from the deal, you’re adversaries, not partners.
And that not only affects your relationship with the client, but it also affects your own self-image.
“How much is ‘so-and-so’ charging?”
Understanding what your competitors are charging is a helpful datapoint for what the market accepts.
But it’s a shitty price anchor.
When you let your competitors dictate your pricing, you’re in a reactive and defensive state of mind. That’s not the mindset you need to move a business forward.
It also damn near ensures you’re going to get commoditized. And commoditization is a death spiral if you’re a solo-service-based business.
3 Alternatives to Consider
Here are 3 better ways to think about pricing, so you and your clients end up better off.
“How much value am I creating?”
Every solution to a problem has an associated value.
Sometimes those solutions are easy to quantify, as is the case with sales and marketing projects, cost saving initiatives, or even weight loss plans.
Sometimes those solutions are more difficult to quantify, as is the case with relationship management, mental health, or many process improvement solutions.
The more specific the problem you solve, the easier it tends to be to quantify.
Either way, when you understand the value you are creating for clients and set reasonable prices based on that, you have a pricing strategy that’s fair for everyone.
“How difficult is this problem to solve without me?”
If you solve a difficult problem, your services are more valuable than if you solve an easy one.
And if you’re one of the only people that can solve that problem, your services are more valuable than if you’re not.
Picking a difficult, or complex problem to solve is a surefire way to put yourself in a position to earn premium rates.
And positioning yourself as a “market of one” with an intentional unique selling proposition is how you earn premium rates for the long-haul.
“Can I create a win/win for us both?”
When I started consulting, I wasn’t an advocate for variable, pay-for-performance pay. It felt like someone was trying to get my time for free.
But that was a symptom of not specializing enough and not having a “productized service” on the front end to diagnose a client’s real problems.
When I started selling my 360º Sales Audit before any engagement, I was able to pop the hood on businesses and see what I was working with. That gave me an opportunity to assess how quickly I could get results.
In some cases, I’d offer a lower retainer in exchange for variable pay based on performance. And on one fractional engagement, that meant a $42k month in revenue instead of a $30k retainer.
It’s not for every service or scenario, but win/win pricing helps reduce risk and create as much alignment as you’re gonna get.
When it comes to pricing your services, avoid falling into the trap of selling yourself short, letting imposter syndrome dictate rates, or creating misalignment between your clients.
Use the value of your work, the strength of your positioning, and even performance to create stronger partnerships - while earning more.
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