The number one misconception service providers and freelancers need to shake
For new business owners, pricing presents one of the earliest and greatest challenges. For independently employed service providers, freelancers and consultants who do not sell a tangible product, the financial demands of running a business, coupled with the challenges of articulating and assigning value to their services outside of their own needs can make finding price points that are appropriate for business owner and client even more difficult.
As a business owner, freelancer, or independently employed professional in any field, you are in the position of managing overhead, creating budgets and working within them. You also need to remember to pay yourself enough to continue to do the work you do without falling down on your professional and personal financial obligations.
Small business owners and freelancers are often hit with financial curveballs. Clients who don’t pay on time, or at all; increases in operating costs (from needing to replace a broken smart phone to needing to hire subcontractors); higher health insurance premiums and tax changes from year to year all work together to create an unpredictable and sometimes precarious financial reality for anyone who is self-employed.
The obvious way to prepare for financial uncertainty is to bring in enough revenue to cover your anticipated cost, protect against unexpected costs, pay yourself, and fund business growth. And since revenue comes from the money you get from clients for the services you provide, it stands to reason that you should build your pricing structure around meeting those needs: operational costs in the present, protection against risk, and funds for the future. Except when that thinking takes the wrong turn.
And it often does, especially when, as a new business owner or freelancer, you start focusing on what you need to charge your client in order to protect your bottom line, rather than what the real cost – and the real value – of your service is.
Your Spending Habits Are Not Your Client’s Problem
Say you bit the bullet and rented office space with an address that gives you the cachet you crave. But you don’t yet have the volume of business to cover those costs comfortably. Do you triple the price of your monthly retainer to your biggest client to go along with the rent that is costing you three times more than it did last month?
Your clients are not responsible for your splurges, nor are they responsible for keeping your lights on. As the business owner, that is your responsibility, and yours alone.
What Really Matters When it Comes to Pricing My Service?
The calculus for determining how to charge for your services takes into account a variety of factors, and of course, your overall budget and business goals are part of that. So is market research, including what your direct competitors are charging, what similar service providers with varying degrees of experience are charging, and what your clients (or clients in your target sectors) are spending or willing to budget for services like yours.
Here is the question that really matters, and it matters more than what you want or what you need: what is your service worth to your client. By no means does this imply “what does your client walk in wanting to pay?” because, invariably, the answer to that is, the least he or she possibly can.
To determine what your service is worth to your client, think about the needs you fulfill and the problems you solve. Identify the negatives your client would face, including the vulnerabilities he would be exposed to and the growth opportunities she would miss, without you in the equation.
Consider also what your service is worth in a practical sense in addition to the ways in which it directly benefits your client. Think about your service in terms of the value of your intellectual property, your experience and your time. As you shift to looking at pricing in this way, as a practical representation of the scope of value that you provide, you are more accurately identifying that ever important value proposition to your client and to yourself.
Always Communicate Value
Even through pricing, then, you have an opportunity to communicate who you are and what you do. Through pricing and the conversations around it, you are able to assert your value, to build a relationship of mutual trust and mutual respect with your client, and to preview the level of professionalism and expertise you will deliver for your clients as soon as they sign the contract.