Let my mistake be your learning opportunity
If you want your service business to thrive instead of just survive, avoid the pricing mistake I made a few years ago.
When I first started practicing law as a side-hustle, pricing my services was my biggest hurdle. Maybe you can identify with this.
I made the same mistake that many new business owners make.
I based my pricing off my own perceptions of my services.
Tell me if this sounds familiar: I was thinking about my competitors, my time, my costs, my break-even point etc, etc, etc.
As a result, not only were my prices way too low, but I wasn’t maximizing the value I was providing my clients either.
This is the problem with the cost or time-based pricing approach that many small businesses are taking. It will forever have you “just getting by.” It will also brand your business as a commodity – just one of a million choices – including online choices these days.
What’s more, when costs go up, or when competition heats up, your commodity-based brand can easily go from “just getting by” to “dying a slow death.”
Price should reflect value
There is a much better approach to pricing: value-based pricing.
It will brand you as a much more valuable, premium, and exclusive business.
It will position you as a niche leader and make scaling up easier.
Ultimately it is what will allow you to make more money and work less.
What is value-based pricing?
Value-based pricing involves focusing on your customers’ perception of your services instead of your own.
Focus on the value of the problem you are solving for them. Focus on the outcome you are achieving for them.
Value-based pricing makes sense and is even backed up by research. See this paper, this paper, this article and this article for examples. In fact, as shown in some of the studies, often customers equate higher prices with better quality.
An added bonus when you price based on value is that you will automatically be inclined to maximize that value for your customers.
As a result, the brand you build for yourself will be one of niche leader, not commodity.
Want an example?
OK, so suppose you are a top-notch copywriter. If you price your services according to your costs or your time you’d consider things like how much your computer costs, how much you should charge per word, or how much your time is worth.
Instead, with value-based pricing you’d focus on what value you bring to your customers. Period.
This could be based on the time and resources what you do for them frees up. Or it could be driven by the results that your deliverable gets them.
Give them a few lines of copy that generates $50,000 in sales? Then maybe charging them $3,000, or even $5,000 won’t sound like much.
The key with value-based pricing though, is your brand.
Unless you’ve branded yourself as a niche-leader and the go-to business for your expertise, you won’t be attracting the type of customer who will appreciate the value you bring in order to pay a value-based price.
Want to start positioning yourself as a niche-leader and have the credibility to charge value-based prices?
Here are three things to do to build your brand the right way:
- Decide to start thinking and talking like a specialist instead of a generalist. There are no such things as generalist niche leaders. Being a niche leader requires that you specialize. This specialization can be in the form of the way you provide your services, the customers you serve, or both. Narrow and deep is better than wide and shallow.
- Get to understand your target customers very, very well. Get to know what results they value, and even more importantly, the things they hate to do. In my case, I got to know my entrepreneur and solopreneur clients very well, understood what they valued, and found out what they dreaded. I focused my efforts on creating value for them while at the same time helping them avoid doing what they dreaded, and I ultimately created win-win services.
- Build your brand around what you can do for your customers instead of your credentials. If your customers are going to pay top dollar for your services they have to trust you. Over-emphasizing your credentials (and by that I mean education, certifications, social status, etc.) can backfire and erode trust. You want your customers to see you as a trusted advisor first, and a highly competent expert second.
I can’t think of a better way to make more and work less than by branding your business as a niche leader.
Now your turn. Are you ready to brand yourself as a niche leader? Will you be giving value-based pricing a try? Let me know what you think in the comments and come drop by our Facebook page and say hi. We really do love to meet the people who read our stuff. It makes it all worth it!
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