Pricing 101, Part 2
Pricing is the most important marketing decision that you could ever make. The price of your product or service almost always dictates the income of your business.
One of the deadliest mistakes a new freelancer makes is to price his services too low just to get the business. I also made the same mistake when I started. Luckily, I was quick to wake up to the realities of the importance of profit. I could almost hear myself swear I would never, ever accept a deal where I am a loser by default. Thus, I was able to craft a new mantra: “Profit or no deal.“
(Please take note that I am talking here about pricing a service. If you are selling a product, there is indeed some wisdom in pricing low but that will not be discussed in this article. Hopefully, I will cover that when I get more requests in the future.)
Pricing 101 : In Search For The Perfect Price
Pricing a service consists of many factors making it almost impossible to strike a perfect price. The following is a short list of those factors – plus a short explanation, mind you.
1. Market demand. Unless your clients are living in a cave, it is safe to assume they have an idea about the market price of your service. Having a crash course on Good old Economics is helpful in this regard.
Take a look at your competition, how much are they charging? Should you price lower, just equal or a little bit higher than the rest? Up to you, actually.
Is there an over-abundance of professionals in your field offering the same services as you are? Or, you are one of the endangered species walking around the planet offering such services? Is the market in dire need of what you have to offer? That’s the law of supply and demand at play.
2. Professional Expertise and Experience. Provided that your client is aware of it, your expertise and experience can greatly contribute to the price of the services that you can offer. It’s something that you can take advantage of.
Are you considered a well-trained guru while the puppies in your community are just not “there” yet to compete with you? You’re a lucky dog, you can command a premium price than the rest of the puppies running around the field.
3. Perceived Value Of The Service. How much is a 500 mL bottle of drinking water? The last time I bought one, I was on my way to a prospect’s office and the price tag was PhP 20.00. I’m sure some of you would disagree. At the very least, it depends on the brand, the place, and most importantly the buyer’s perception of the benefits the product brings. If you are selling me the same volume of water at the top of Mount Apo for PhP 2,000.00 a bottle, I wouldn’t hesitate buying it if I am deprived of water for 48 hours straight! I would even thank you for your generosity.
The same can be said of services. The client who realized the great benefits of your services will move heaven and hell if you are the one who can give it to him.
Unsolicited Advice On Pricing A Service
You should price your service in such a way that you eventually make the most profit! If you really want to be a real entrepreneur, you better be on good terms with the word “profit.” Otherwise, just do yourself a favor by getting out of your way and do something else more meaningful… like taking up Law and offering pro bono.
Profit, in simple terms, is just Income minus Expense. You already know what Income means so that leaves me to explain a bit about the word Expense. Well, that’s not really a challenge. Just give a few dollars and I will show you what Expense means.
Profit allows you to stay in business.
Why do you want to stay in business?
Well, why are you doing it in the first place?
[...] I have so much to thank Mario. Because of that email, I was able to write a two-part article on pricing: Price 101, Part 1 followed by Pricing 101, Part 2. [...]