There was a time when service professionals of any kind could have simply asked for the “standard rate,” a typical hourly figure that most if not all practitioners in the same geographic area would have stuck to. But with the rise of online outsourcing and the increased accessibility of foreign talent, those days are long gone.
And for savvy business owners, this news couldn’t have come fast enough. Because the truth is, the opening of international markets to freelancers and service professionals has actually increased business’ flexibility in pricing their services. Sure, the web is full of contractors willing to sell their services for pennies, but on the flip-side qualified and talented contractors now have tens of thousands of potential clients to work with, instead of the few dozen they’d be lucky to get in the days when everyone worked locally.
This makes pricing simultaneously more flexible, and more complex, for businesses in the web 2.0 era. There’s an art to pricing your services right, a kind of method for teasing out what a client can afford to pay and matching it with what you believe your services are worth. And, once you have mastered this art, you will find that getting paid what you’re worth is a cinch.
The art of pricing is mostly a matter of calibration; that is, something you can only pick up with experience. But still, there are a few basic tips I’ve picked up in my 10+ year career in business that can help you determine how to price your services when submitting proposals to potential clients. Here are the three pricing principles that have helped me most in my career, in no particular order:
1. Know Your Client
It’s pretty easy to anticipate which clients have big budgets, and which are more likely to be on a shoestring budget. Of course, you’ll make more money working exclusively with wealthy clients; however, in the beginning, this is not always an option. Early in your career, when you have less flexibility to pick and choose from amongst different clients, it’s a good idea to try and bid higher with large institutional clients, and bid lower with individuals or up and coming startups that may not have the best budgets. This is a standard practice that lawyers and doctors have been using for years.
2. Set An “Absolute Minimum.”
But, as wise as it is to charge more to those who have more and charge less to those who have less, you still need to set an “absolute minimum,” a price that you can go no lower than except under extreme circumstances. Of course, this will vary widely from person to person and from business to business, but in general, the lower range of rates you see being advertised on job boards are an area you should definitely stay away from.
3. Ask High, But Be Willing To Negotiate.
Ask any salesperson: the most profitable negotiation tactic is to start with a high number, and be willing to “slide” if the prospect refuses. This applies to selling services as well as selling cars or computers. A good rule of thumb for bidding is to simply include a quote that’s 50% higher than your absolute minimum on your proposal. If the client rejects the bid, you can then slide to a lower price point in your negotiations.
If you stick to these three rules, you’ll have no problem figuring out how to price your services. But of course, the best guide at the end of the day is your own intuition combined with experience. Some contractors prefer to bid low and do a higher volume of work, while others prefer to bid high and spend more time on each project. Which approach is “right” is entirely up to you.
What are your pricing techniques?