Most small business folks that I work with worry their price is too high. They fear that clients won’t pay it. Is that you, too? It’s a rough spot to be in- asking to be valued but fearing you won’t be. And it causes some crazy-ass behavior in entrepreneurs like forgetting to say your price or leaving it off materials, or dreading the client who asks for a lower price.
Totally understandable. I’ve been on that merry-go-round several times. Thankfully, there’s a way to get off, charge what you deserve, feel good about it and get it.
Defend Your Price
The best way to not get into a hassle with clients who want discounts is to have a firm, defensible number. What does that mean?
Your price is firm when it is consistent and comfortable. Nothing says flying-by- the-seat-of-your-pants to me more than fumbling when talking money. Your price and the process for starting work together should roll of your tongue like buttah. And, it has to be consistent. Sure, there are times to make an exception but generally it’s best to quote one price until you decide to raise it.
When I was consulting I offered my corporate clients a small price break in exchange for paying upfront. My price stayed firm. I gave up a small amount of revenue in exchange for the convenience of having use of the money sooner. A strategic use of discounting that smoothed out my cash flow.
Your price is defensible when there’s a solid reasoning for it. Sort of like math in school, you gotta show the whole calculation. Why does it cost this? What goes into the creation of your product or service that your client wouldn’t necessarily know about?
Case in point. We’re renovating and the cost of tile work seemed high to me. My smart contractor showed me exactly how my selections (mosaic floor tile on mesh) required more detail labor than regular 12x12s. Once I saw that I had a new context for the prices, and they seemed more reasonable.
Another example. It brings a smile to my face to remember my small business clients who booked my Ombuds services got around to asking this question: What are we paying you for? To sit and listen???
From the outside that’s exactly what it looks like. I sit down virtually with the person and we talk about what’s happening and what they’d like to change. Doesn’t look life or business changing, but it is. Properly understood with the right facts and anecdotes, listening well can be very compelling and lucrative.
What did I answer? Simply that, their organization would be strengthened because of our work together. Managers and co-workers wouldn’t be at the mercy of their feelings or fears or feel the need to hold the company’s productivity hostage.
I informed them that learning to listen and respond effectively would absolutely improve their bottom line. Why? Because mistakes get caught faster, innovation increases and people are plain happier in a culture of blameless communication where people feel heard and acknowledged.
Interpersonal skills are the last cost-savings frontier to for smart, savvy companies to conquer to thrive in the Great Recession. You can use the same kind of reasoning for your service business (do you own research, of course)
If you’re pricing a product, a cost of goods sold discussion can really help clients peek behind the curtains and see exactly why things cost what they do. Being transparent cures skepticism. I hear you saying, WHAT? Share my costs??? Newsflash- people expect you to make money. It’s not a secret.
Sometimes, you can defend your price based on the intangibles like prestige, access and status. Volvo and Porsche are cars that drive you from one place to another like any other car. But because of the desirability of their intangibles, people perceive more value and are willing to pay more. Volvo sells safety. Porsche sells lifestyle. I recently watched a Shark Tank episode where the primary product was access. A nightlife entrepreneur promised access to VIP services at the hottest spots and charged a nice membership fee for it.
How do you build a good defense?
Know your numbers. I’m surprised how often biz folks don’t know their own numbers. I’m not immune, either. It’s only in the last few years that I’ve been more interested in the nitty gritty of the numbers. Check out Found Money by Steve Wilkinghoff if you want to read up. It’s not light reading, but understanding why one service or product is profitable over another is fascinating. And, totally useful to boost your own income.
The numbers I mean here are the demographics or psycho-graphics. The lifestyle stuff about your clients like their attitudes, values, location, age, gender, income. Marketers suggest you build a buyer persona to help with creating marketing messages that are authentic and rich.
I say, use the same persona to help set the right price. Each one of us has a money set-point around purchases. Kinda like a range: one end is too cheap, the other end is too expensive. (What’s the most you ever spent on shoes? That’s your high point) Digging for this data helps you frame the range for your clients. Here are a couple of good questions to get you started.
How much do they make?
Where do they shop?
What zip code, and what’s the average household income for that zip.
What magazines do they read.
A chat with your local business librarian will yield tons of usable data. It’s great to have stats and other data to shape client perceptions, to put things in context. Doing the research to defend your price empowers you to ask for it -and get it. The more confident you are that your is right, the easier it gets to attract clients who want to pay you that. It’s an intention thing.