Are you selling some sort of service? Would you like to get the best rate of pay for your services?
I believe this may have frustrated you some points in the past, as setting a price for service offering is often fraught with pitfalls.
Often what seems to be logical could prove to be very wrong. If like most people, you set your price based on the income that you want to generate, i.e. USD60,000 a year and think that you should charge a daily rate of USD600 for a 100 days of chargeable work, paper wise, you are very rational and you are right; however, you tend to lose out in the long run if you do not take into consideration the following:
- The price range that your customer expects to pay
- Price sensitivity of your customer
Let us take the foregoing USD60,000 as an example, assuming the minimum price in the market for your service as charged by your competitor is USD500 a day. If so, I congratulate you that your customer is giving you a ‘BONUS’!
Depending on what type of services that you are offering, if you are a consultant such as that to provide management solution to improve a company financial performance and your customers are willing to engage you by giving you extra BONUS, it can generally mean two things, i.e. i) there are no obvious competitors in the market for your service or ii) you have had the reputation that customers are willing to pay you more.
However, taking the USD600 daily rate again, would you want to work 100 days a year at USD600 a day when you are able to work USD1,000 daily for 60 days only? For a consultant, undercharging is more problematic than overcharging, because your customer will assume that is the rate that they are going to pay you in future. In addition to this, you give the impression that you are lacking the required experience than your competitors—you will fall through the floor of credibility!
In my experience, consultancy is a relatively price-insensitive market because customers are usually seeking help for some tough solutions that are not so easily achievable. But what happens if the services that you offer is in a price-sensitive market? Then, of course, it makes sense to take a less cavalier approach, in short, you need to know your marketplace and your customers.
Usually, to know your marketplace and your customers is to find out:
- What people who provide a similar service to yours are charging? (Tip: You can gain the idea of this through Yellow Pages or by making some phone calls.)
- How your service quality matches up against your competitors?
What I can say is that the biggest single danger is not to be seduced by the so-called popular price-setting model such as to sell more and to sell cheap as that may lead you to overwork but underpaid which is obviously no good.
Even the service you offer has no obvious competitors, it is still advisable to do your market research to determine the reasonable amount that your customers are willing to pay you to avoid the undercharging problem as mentioned earlier, and to factor in the extent to which you may lose customers by raising your price or gain them by reducing your charges.