Know your worth and own it
How to price a service without undercutting yourself
Why do we undercharge?
In many cases, people undercharge to take on or keep a client. So, why is that? Pricing a service is more complicated than pricing a product because you can often figure out the cost of making a physical product. But for a service, calculating management, staff expertise, and the value of your time is more individual.
When trying to price a service, almost every business owner or entrepreneur experiences some degree of impostor syndrome. They question their self-worth. They might think:
- “I don’t have the credentials.”
- “What if people say no to my prices?”
- “My competitors are charging less. How can I charge this much?”
Do not give in to these doubts and allow them to control prices for your services.
A true negotiation story
Once upon a time, there was an experienced marketing consultant who charged $10,000 for his service. One day, a small business owner approached him with a promising idea. The consultant was interested and wanted to take on the work, but he knew the client did not have a big budget.
He lowered his price to $5,000 for the project. However, the client said he could only pay $5,000.
What would you do at this stage of the negotiation?
Pause for one second to consider what you would do to seal this deal.
As a consultant, you might continue to negotiate the price and try to agree on something between $3,000 and $5,000. In this case, you would be undercharging.
But from a client’s perspective, the worth of your work is built on their understanding of the market fee, their estimation of your value and what they are willing to pay. Plus, everyone wants a good bargain. So the price your client offers cannot truly reflect your true value.
“If you’re time broke or money broke, you’re undercharging.”
-Sylvia Garibaldi, CEO of SG and Associates
The dangers of undercharging
Your prices for services must keep your business sustainable.
Sylvia Garibaldi, keynote speaker at the recent NYWIB conference, Master Pricing & Double Your Income, cautioned that undercharging is a danger. It can lead to problems. Among them:
- You get burned out, stressed, and constantly ask yourself, “Is it worth it?”
- You continually attract broke clients with zero to no results.
- You lose potentially valuable clients. They walk away because they think your service must be inferior if it’s at a lower price.
- You suffer long-term consequences to your growth and profitability. You might become stuck in this vicious cycle of undercharging that leads to the stagnation or even failure of your business.
Figure out what clients will pay
To get started, take a piece of paper. Look at the questions below, think carefully about each then write down your answers.
Here are the questions to help you figure out your worth:
- What you have accomplished in your career over the years
- What is unique about you and your service
- How can you help your clients
- Where you want your business to be in a year
Find the strength to defy your self-doubts by keeping these answers in mind. Understand your own value and base your price on it, which we get into in detail below.
Only then can you persuade your clients to pay your prices — with evidence and confidence.
Calculate your flat fee
Clients always want the best result in the shortest amount of time. If you charge by the hour however, they might question if you’re idling on this job just to get paid more. Also, charging hourly rate creates uncertainty for your clients about how much they will pay for the project. This is why we generally recommend you negotiate a by-project fee. By charging a flat fee, you are inherently making a commitment to finish the project, which builds trust and fosters long-lasting client relationships.
- Carry out research to determine your hourly rate
- Estimate the timeframe for the project. Be sure to leave a time buffer for unexpected revisions and delays.
- Multiply your hourly rate by the number of hours to come up with a flat estimate for the project
Lastly, yet importantly, be sure to carefully define the scope of work with your client. There should be a clear understanding of when a change in the project requires an amendment to your contract.
Back to our true story
So what did our $10,000-consultant say to the client who said he had only $3,000?
“You can pay me $3,000 before we start, and you will be happy to pay me the rest $2,000 when you get the result.”
They reached a deal. The client gladly paid $5,000 when the work was done.
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