How much should I charge?
How much should I charge?
The question, “How much should I charge?” is one of the most frequent questions that I get from new business owners. Newbies struggle with this because they lack the exerience to understand what all is involved in pricing their services. But they’re not the only ones.
A huge majority of the clients that I work with, even those that have been in the business for years, still have no idea how to price their services.
Let’s look at the two most common ways that business owners set their fees:
1.) Here’s the most popular, and absolute worst, formula that most business owners use to price their services – they find out what all of the other photograhers and cake bakers (or whatever they are) are charging in their city and they charge the same. Or even worse, they charge a little less because they’re new and think they can always raise their prices later, once they’ve gotten more experience. Or the worst of the worst, they charge much less because they build their business model on undercutting the competition because they “can’t believe how expensive” this or that is.
2.) They use a bit more sophisticated method. They first figure out what they need (or want) to make every year. Then they add in all of their anticipated fixed business expenses – office space, advertising, printing, etc. Once they have this number they divide it by the month, booked event, billable hour, cake baked, or whatever product they sell and how they sell it. This gives them a number of how much they NEED to charge for their services to make a living.
So which way is best? Well, if you did the first one, you should kick you’re own self in the ass. (Yes, I’ve been accused of being somewhat blunt, so let’s move on.) With this option you are assuming that you want to run your business just like everybody else, offer exactly the same services that everyone else offers, and do business all around in the exact same way as all of your competitors. And as a consequence of this, you will forever be COMPETING ON PRICE with your competitors, instead of standing out from the crowd. This is the worst choice for setting your pricing.
If you did the second, you’re closer to where you should be with your pricing, but only part of the way there. I always run through this “pricing starting point” exercise with my clients and they’re often quite surprised to find that they should have been charging more for their services all along. So here’s what we do:
*Once we arrive at their “pricing starting point” number they start selling their services to all of their new clients at this new number IMMEDIATELY. Once they get comfortable with using this number to sell their services and they’re getting low price resistance from their customers (meaning – it’s easy to sell at this price and they’re no longer hesitant to ask for it) we raise the prices a bit. A 10% increase is a good next step. Then we start again. Once they are not getting any price resistance from customers and it’s easy to sell at that figure, we raise the prices another 10%. And we don’t stop there. We keep doing this over and over until they hit their pricing ceiling – the number that becomes too hard to sell and may cause a customer loss greater than the extra profit from selling to fewer clients.
Are you freaking out yet? A lot of my clients do at this point. You’re probably thinking I’m crazy and thinking of a hundred reasons this won’t work for your industry. Well you’re wrong! It does work and it will work for you. You just have to do it. Put it into action!
I will give you an example where this has worked. There is a wedding planner that was new in the Austin market that was charging $1500 for full service planning just so she could attract some customers. (If you’re unfamiliar with the Austin market, this is a ridiculously low price for full service wedding planning!) After some brief coaching from us she DOUBLED her rate to $3,000 and booked the next couple she met with! Her confidence soared and on the next client she increased her fees to $3,350. The next client to $3,700. The next client was $4,000. She kept going until she hit $4,500 and that was her ceiling. So her starting rate is now $4,500 per client for full service wedding planning. I contend that she could have kept going but that was where she was comfortable.
So, agree with me or not, the amount that you charge has nothing to do with your competition. If you’re not making what you think you should be, then you should immediately implement this strategy into your business.
Do you need help setting your pricing strategy? Contact us today!