006 STBS: Power Pricing and How To Price Fairly

Transcript of episode:  Click here to read

In this episode, I talk about how to price yourself fairly to your clients and how to create a win-win situation for the both of you.  Pricing is one of the most difficult steps in the whole business process, not because it's hard to calculate what you should be charging clients, but because there are huge emotional and self-confidence barriers that you need to overcome first. That being said, if you can't price yourself correctly, then you are likely to fail in any business venture.

Steps to Overcoming Pricing Barriers

First step is to realize that asking for money in return for a service is not a bad thing.  Not only that, asking for a considerable amount of money for your services is totally acceptable if you are giving your client great value.

Second, look at how much you are being paid at your current job.  While you may be getting $20-$40 an hour, the actual cost of you to the company is considerable.  As mentioned in the podcast, the current rate for folks in my full-time organization is around $150 and hour.

What If I Overprice?

It is very hard to overprice if you are delivering a valuable service.  When most people ask about overpricing they really mean, how could I possibly charge a lot of money?  Amounts are relative to value! For example,  if you charge a client $5000 for 2 hours of work – yet they make an additional $500,000 annually as a direct result of your service – does the amount you charge really seem like a lot?  Of course not!

If you give your customer more value than what they've paid you, then you are golden.  Don't worry about whether it's a lot of money or not.

Always Ask for More, Not Less

One of the major gambits in negotiation is pricing higher than what you would want as a minimum payment (I highly recommend the Secrets of Power Negotiating).  There are two reasons for this.  First, it creates a win-win situation.  For example, if you want to make $1000 for a project, and you charge $2000 – even if you negotiate down to $1500 you win because it's more than $1000 and your client wins because it's less than $2000.

You can never negotiate up!

Second, it's build perceived value in your service.  It's weird, but the more expensive something is, the more valuable it seems even if it's not.  That's life.

Pricing Types and How to Calculate Your Price

Lastly, there are a couple of ways to price yourself – hourly, fixed-price, and value based.  As emphasized in Alan Weiss' book Million Dollar Consulting, you always want to price yourself based on value.

Here's the way I figure out how much I should charge clients.  I determine my annual income needs (gross income), let's say $200,000.  Next, I figure out how may clients I ideally want to have throughout the year.  If it's 6 clients, I need to charge them $3000 a month each in whatever services that I provide.

Of course, I could add more clients and charge less, or reduce clients and charge more.

Thanks!

I wanted to give a big shout out to Megan Enloe from www.podcastjunky.com.  She gave some great constructive criticism regarding my show notes and how I should include more information.  Don't forget to follow Paul Tran, Rochelle Veturis, Debbie Miller, Neal Schaffer, and Ted Nguyen.  All great people that I've mentioned at some point in the podcast or on the blog!

1 Comment

  • Matt

    January 6, 2011

    AH! Loved this post, looking forward to the podcast. So much valuable stuff here. I think a majority of the issue is all mental… it's just a matter of getting over the fact of charging X or Y. I also think perceived value is important. I know that's played a factor in my work. You also touched upon how many clients you want throughout the year and your yearly goal. I think that's very important. Some people are ok with charging less because they think that'll help them get a job… and although it might, it also means they'll need more of them. I'd much rather have fewer higher quality clients than several lower paying clients (who may be a hassle). The trick is in attracting and finding those clients.