It’s a tough question to answer for many entrepreneurs: “How much should I charge for my services? What am I worth?”
There are many options available to you:
- Charge by the hour
- Charge a flat rate for the project
- Charge by results
If you price yourself too low, then you’re leaving money on the table and you could end up losing the client because he’ll see you as a cheap service or product.
If you price yourself high as a strategy to negotiate down, then you still may end up losing the client because they may not even bother negotiating you down; instead, they may choose to move on to the next provider – trust me, it’s happened to me before.
The first price proposed is absolutely critical because it’s the starting point for price negotiations. Below are the strategies that I use to maximize my price-point and value created.
RFP: Request for Proposal
Truthfully, I don’t bother with random RFP’s. However, because we work with some of the largest brands in the US, they at times make us submit an RFP to compete for a project against other agencies vying for the project.
Pricing at this point is pretty easy because RFP’s usually come with a designated budget. To price the project, create a proposal that breaks down each part of the project into hours and then price yourself accordingly to hit the budget amount.
Tips for pricing an RFP:
- Don’t go below the budgeted amount thinking you’ll beat the competition on price. Big companies have allocated $X amount for this campaign and they expect to pay $X. Go for the full amount.
- Pricing will depend on (hours worked) x (price per hour). For any project, decrease your hours worked and increase your price per hour. This has several benefits:
- A higher price per hour shows that you’re high quality and that you’re fast and efficient with projects
- A higher price point allows you to charge more for small, quick projects that may only require 5 – 10 hours of work
Referral vs Cold
Referrals from a trusted source are excellent because the referrer can assist you in closing the deal and justifying a high price point. A trusted referral eliminates the fear of coming in with too high a price and scaring away a potential client. If the price is way too high, then the potential client will negotiate it down with you out of respect for the person that made the referral.
On the other hand, cold contacts turned potential clients can easily be scared by too high a price point. It’s therefore important to understand the following criteria of the potential client:
- Size of the company: simple, the bigger the client the greater the price-point
- Estimated revenue per month and per year: it’s possible to estimate revenue with intelligent questions. Ask your potential client how many customers they service per month/year and what the average price is for their service. The more money they make the greater the price-point.
- Priority for the project: if this project is for an upcoming holiday season, then you know it’s a priority because they can’t put it off till later. The greater the priority, the greater the price-point.
- Value created (discussed below)
Case studies, testimonials, and experience
Case studies and testimonials will greatly help you increase your price-point. I make sure to include testimonials and case studies from our clients in all of my presentations as it helps me establish credibility and justify the high price for my service.
The more success stories you have, the higher the price you can charge – plain and simple.
Stress the importance of quality and long term success: A key talking point in all of my presentations is the importance of executing the project to perfection right now for long term success. Sure, the potential client can choose a cheaper provider with less experience, but they run the risk of missing a launch date or a less-than-perfect product. This will only hurt their company in the long run and cost them more money because they’ll then have to hire us to rebuild the project and do it right.
Measurable value creation is critical in justifying your worth.
At RewardMe, we could prove a measurable 2% increase in bottom-line revenue for clients that use our product. That’s an increase of $200,000 annually for a company that makes $10,000,000 a year. We were therefore able to justify our price because we have proven success with our other clients.
If you can justify the value created for the client, then you can easily justify your price-point.
How I price myself
I had absolutely no idea how to price myself out of college. I was a 22-year old with no experience, but had the drive and determination to get a client.
My first client was a former boss that needed market research done. I estimated the project would take two weeks. My friends at the time were making around $50,000 straight out of college, so I made the assumption that I too was worth an annual salary of $50,000. If was worth $50,000 a year, then two weeks of work was worth $2,083. So I gave my former boss a price of $2,000 for the 2-week project. He was a nice guy, so he didn’t negotiate me down and I closed the deal.
My next client was a website development project for a cold contact. To price the project, I spoke with my developer to determine how many hours it would take to build and launch the website. He estimated 25 hours. I remembered that at my former company I was getting billed out at $220/hour – which was crazy to me, because I only saw $25 of that! The potential client was not a big company at all, so I priced my developers hourly rate at $100/hour, which I thought was reasonable; the potential client apparently didn’t think it reasonable though. Instead of bringing down our hourly price, I added in “social media consulting” for free, which was a hot topic back in the day. Luckily, the potential client had heard about social media marketing and was intrigued, so we closed the deal.
Because of the reputation my company has established in the industry, we’re able to charge a high-price point for the quality of our service. The model that we follow: do a great job, use the happy client as a reference and testimonial, increase our price point for the next project. It’s a simple yet effective model that has allowed us to steadily grow our revenue stream without the need to heavily increase our client load.
Use the criteria above to qualify your potential client and intelligently price yourself accordingly. The most important part is to do great work because you can justify your pricing with great testimonials and references.
If you want to build a profitable, sustainable lifestyle business, then the best place to start is to become an Ecommerce Rules Insider.
Here’s what you’ll get right now...
- The multi-million dollar drop-shipping case study
- Sneak peek at our drop-shipper database
- Free regular advice for building a successful lifestyle business
- ... and much more