How to start getting paid what youre worth
| Category: Marketing | Date: 2001-02-15 |
Sure, your clients love your work. But do they love you enough to pay you what youre worth? Do you know what youre worth? Have you given much thought to how much you should charge your clients? Figuring out how to price your services is difficult -- and sometimes awkward. But it can be done. First and foremost, you need to assess the value and the impact of the services you provide. Second, you need to figure out what you really have to offer. Finally, you need to create a pricing policy to determine exactly how much you will charge for your services -- and stick to it. If you want to start getting paid what youre worth, these are the things to consider before you slap a price tag on your services.
What You Need to Know
Pricing involves more than just establishing an hourly or project rate. Your services may be worth much more than you realize.
Whats Five Minutes Worth To You?
Consider this true tale: A company was having a chronic computer problem. The machines were crashing several times each day. Desperate to make the problem go away, company execs called in the best computer guru they could find. He arrived at the office, asked a few questions, looked at the server, and pressed a few keys. From start to finish, the whole process took about five minutes. "There," he said, "that should do it." And it did. The computers stopped crashing, and the company was back in business.
About a week later an invoice arrived. It read, "Fixed computer crashes: $1,000." The owner of the company was surprised that hed been charged so much money, so he asked the guru to itemize the bill.
A few days later, another invoice arrived: "Fixing computer crashes: $5.00. Knowing how to fix computer crashes: $995.00."
This guru recognized the importance of charging for his value, not his time. He understood that he gets paid for his solutions, not for just showing up. This is what separates true gurus from mere experts.
Feel the Pain
Consider how much it cost the company with the crashing computers to live with the problem. Lets assume 100 employees earning $25 per hour. If the computers go down for an hour every day, thats $2,500 per day, times 22 working days each month, for a total monthly cost of at least$55,000. Against that backdrop, $1,000 seems like a bargain.
Gurus are called in when clients experience a problem they cant solve on their own. Your task is to find out how much the problem is costing the client. You can try asking this question point-blank, but you may not get a straight answer. Instead, try to get a sense of the clients overall situation to assess what doing nothing would mean to their business. The costs of inaction may not be immediately apparent to the client, so some gurus actually try to increase the perception of pain. That way, clients are more willing to pay good money for the help they need.
You also need to understand the clients ultimate objectives. There is nothing more important to learn when meeting with a prospective client than the answer to this question: "What goals will we need to meet for you to feel completely happy with this project?" When you get an answer, take notes, confirm what was said, and be sure those objectives appear at the top of your project proposal. Ideal objectives are targets that the client wants and which you know you can deliver.
Dont Become a Commodity
Unfortunately, clients and would-be gurus often get mired in "process." Establishing goals and objectives is important, but that has very little to do with assessing your true value. On the other hand, if you sell a tangible solution -- as opposed to a process -- you add a whole new dimension of value to your work. This isnt simply a matter of semantics. For instance, doesnt "increase total sales by 25 percent" sound a lot more compelling than, "conduct a sales training course?" The former is a solution, the latter is a commodity.
A process can easily become a commodity, and commodities are very price-sensitive. Imagine a client saying, "Oh, now I understand! Youre going to do the XYZ process. Well, I know someone who can do that same process for half the cost. Can you lower your fee to meet theirs?" If that happens, say goodbye to getting paid what youre worth. Concentrate on results -- dont get drawn into discussions about the processes that generate the results.
What You Need to Do
Stand for Solutions
Not every client will buy into the distinction between a process and a solution. Some might want to buy a commodity. If thats the case, they might not be the right client for you. As soon as you agree to provide a commodity, your fees plummet. When you commit to providing value-added, guaranteed solutions, your fees soar.
Heres a good credo to repeat just before meeting with a potential client: "Gurus sell solutions. Gurus promise results. Gurus guarantee these results. Gurus base their fees on what these results are worth to the client."
This is how to explain that to your client: "My hourly rate? My daily rate? I actually dont have an hourly or daily rate -- I base my services on providing solutions. This protects you. If I cant provide the solution, you dont pay."
Break it Down
If you dont know much about the scope and parameters of a project, its hard to predict how much time it will take. Start by developing project specifications or conducting a needs-assessment -- either for a relatively low fixed price or daily fee. Once youve done that, you can then break the project down into smaller, more manageable pieces -- and determine your project fees accordingly.
Thats how one software developer I know prices his services. This guy actually promises to develop software for a fixed price, gives an on-time guarantee, and offers to fix bugs for free throughout the life of the software. Most software developers think hes insane, but my friend has been very successful because he always breaks projects into modular pieces. Each piece carries a guarantee, but the guarantee is contingent upon making sure that the clients fulfills all of their contractual obligations. If clients dont keep up their end of the bargain, the guarantee is void.
Never Promise in a Vacuum
This software developer is playing it smart -- he doesnt make promises in a vacuum. Unclear project specifications can lead to all kinds of abuses by your clients. We call it "scope creep." Without clear specs, projects will inevitably demand more of your time than you budgeted with your fixed-price bid. When that happens, dollar signs can very quickly turn into cent signs.
To avoid that, always establish a rock-solid understanding about project objectives and parameters, break the project into chunks, and clearly outline the clients responsibilities. Later, the client may turn around to say something along the lines of, "Were really happy with how this is going, and it would be great to include some of people from our other division in this project." Dont panic. Instead, simply say, "No problem, let me write up an addition to our agreement. First, lets talk about your objectives." Assess the value. Then, re-price your services accordingly.
Stick To Your Price
Even if a client buys your concept, loves the idea of a fixed-price project with a guarantee, and wants to start yesterday, dont be surprised if they ask you to lower your price -- say, by 20 percent. You might be tempted to agree, just to get the job. Dont. Reducing your fees will only lead to a downward spiral. Draw the line right away: "Ive priced this project with a guarantee to ensure results. In addition, weve determined that the project will pay almost ten to one in realized value. If we were to reduce the overall price, which part of the project do you want me to leave out?"
Funny thing. Clients may not like paying high prices, but they hate reducing value even more. Remember this rule-of-thumb: If you reduce the price, you should also reduce the value. In the long run, this is the best way to develop your career. By defending your fair price, you also increase your personal sense of value.
Get Paid Like a Guru
Notice that I have not recommended that you calculate how much you need to make in a year, divide that by the number of hours you expect to work, and then add in some overhead to develop an hourly rate. Do this only if you want to be an underpaid guru. Think differently. Know what your solutions are really worth to your clients and how much it costs them to not act. Make sure you understand your clients objectives, build proposals based on those objectives, and deliver real solutions backed by a guarantee. Dont reduce your fees without reducing value. Do all this, and youll start making some serious money. I guarantee it!
Quick Take-away
Understand both the clients pain and their objectives before you put a price tag on your services. You get paid what youre worth only if you sell solutions, not commodities. Dont lower your fee unless your client agrees to reduce the value of services received.
About the Author
Robert Middleton of Action Plan Marketing works with professional service businesses to help them attract new clients. His web site is a valuable resource for anyone looking for effective marketing ideas.
Robert Middleton
robmid@actionplan.com
URL
http://www.actionplan.com
robmid@actionplan.com
http://www.actionplan.com
What You Need to Know
Pricing involves more than just establishing an hourly or project rate. Your services may be worth much more than you realize.
Whats Five Minutes Worth To You?
Consider this true tale: A company was having a chronic computer problem. The machines were crashing several times each day. Desperate to make the problem go away, company execs called in the best computer guru they could find. He arrived at the office, asked a few questions, looked at the server, and pressed a few keys. From start to finish, the whole process took about five minutes. "There," he said, "that should do it." And it did. The computers stopped crashing, and the company was back in business.
About a week later an invoice arrived. It read, "Fixed computer crashes: $1,000." The owner of the company was surprised that hed been charged so much money, so he asked the guru to itemize the bill.
A few days later, another invoice arrived: "Fixing computer crashes: $5.00. Knowing how to fix computer crashes: $995.00."
This guru recognized the importance of charging for his value, not his time. He understood that he gets paid for his solutions, not for just showing up. This is what separates true gurus from mere experts.
Feel the Pain
Consider how much it cost the company with the crashing computers to live with the problem. Lets assume 100 employees earning $25 per hour. If the computers go down for an hour every day, thats $2,500 per day, times 22 working days each month, for a total monthly cost of at least$55,000. Against that backdrop, $1,000 seems like a bargain.
Gurus are called in when clients experience a problem they cant solve on their own. Your task is to find out how much the problem is costing the client. You can try asking this question point-blank, but you may not get a straight answer. Instead, try to get a sense of the clients overall situation to assess what doing nothing would mean to their business. The costs of inaction may not be immediately apparent to the client, so some gurus actually try to increase the perception of pain. That way, clients are more willing to pay good money for the help they need.
You also need to understand the clients ultimate objectives. There is nothing more important to learn when meeting with a prospective client than the answer to this question: "What goals will we need to meet for you to feel completely happy with this project?" When you get an answer, take notes, confirm what was said, and be sure those objectives appear at the top of your project proposal. Ideal objectives are targets that the client wants and which you know you can deliver.
Dont Become a Commodity
Unfortunately, clients and would-be gurus often get mired in "process." Establishing goals and objectives is important, but that has very little to do with assessing your true value. On the other hand, if you sell a tangible solution -- as opposed to a process -- you add a whole new dimension of value to your work. This isnt simply a matter of semantics. For instance, doesnt "increase total sales by 25 percent" sound a lot more compelling than, "conduct a sales training course?" The former is a solution, the latter is a commodity.
A process can easily become a commodity, and commodities are very price-sensitive. Imagine a client saying, "Oh, now I understand! Youre going to do the XYZ process. Well, I know someone who can do that same process for half the cost. Can you lower your fee to meet theirs?" If that happens, say goodbye to getting paid what youre worth. Concentrate on results -- dont get drawn into discussions about the processes that generate the results.
What You Need to Do
Stand for Solutions
Not every client will buy into the distinction between a process and a solution. Some might want to buy a commodity. If thats the case, they might not be the right client for you. As soon as you agree to provide a commodity, your fees plummet. When you commit to providing value-added, guaranteed solutions, your fees soar.
Heres a good credo to repeat just before meeting with a potential client: "Gurus sell solutions. Gurus promise results. Gurus guarantee these results. Gurus base their fees on what these results are worth to the client."
This is how to explain that to your client: "My hourly rate? My daily rate? I actually dont have an hourly or daily rate -- I base my services on providing solutions. This protects you. If I cant provide the solution, you dont pay."
Break it Down
If you dont know much about the scope and parameters of a project, its hard to predict how much time it will take. Start by developing project specifications or conducting a needs-assessment -- either for a relatively low fixed price or daily fee. Once youve done that, you can then break the project down into smaller, more manageable pieces -- and determine your project fees accordingly.
Thats how one software developer I know prices his services. This guy actually promises to develop software for a fixed price, gives an on-time guarantee, and offers to fix bugs for free throughout the life of the software. Most software developers think hes insane, but my friend has been very successful because he always breaks projects into modular pieces. Each piece carries a guarantee, but the guarantee is contingent upon making sure that the clients fulfills all of their contractual obligations. If clients dont keep up their end of the bargain, the guarantee is void.
Never Promise in a Vacuum
This software developer is playing it smart -- he doesnt make promises in a vacuum. Unclear project specifications can lead to all kinds of abuses by your clients. We call it "scope creep." Without clear specs, projects will inevitably demand more of your time than you budgeted with your fixed-price bid. When that happens, dollar signs can very quickly turn into cent signs.
To avoid that, always establish a rock-solid understanding about project objectives and parameters, break the project into chunks, and clearly outline the clients responsibilities. Later, the client may turn around to say something along the lines of, "Were really happy with how this is going, and it would be great to include some of people from our other division in this project." Dont panic. Instead, simply say, "No problem, let me write up an addition to our agreement. First, lets talk about your objectives." Assess the value. Then, re-price your services accordingly.
Stick To Your Price
Even if a client buys your concept, loves the idea of a fixed-price project with a guarantee, and wants to start yesterday, dont be surprised if they ask you to lower your price -- say, by 20 percent. You might be tempted to agree, just to get the job. Dont. Reducing your fees will only lead to a downward spiral. Draw the line right away: "Ive priced this project with a guarantee to ensure results. In addition, weve determined that the project will pay almost ten to one in realized value. If we were to reduce the overall price, which part of the project do you want me to leave out?"
Funny thing. Clients may not like paying high prices, but they hate reducing value even more. Remember this rule-of-thumb: If you reduce the price, you should also reduce the value. In the long run, this is the best way to develop your career. By defending your fair price, you also increase your personal sense of value.
Get Paid Like a Guru
Notice that I have not recommended that you calculate how much you need to make in a year, divide that by the number of hours you expect to work, and then add in some overhead to develop an hourly rate. Do this only if you want to be an underpaid guru. Think differently. Know what your solutions are really worth to your clients and how much it costs them to not act. Make sure you understand your clients objectives, build proposals based on those objectives, and deliver real solutions backed by a guarantee. Dont reduce your fees without reducing value. Do all this, and youll start making some serious money. I guarantee it!
Quick Take-away
Understand both the clients pain and their objectives before you put a price tag on your services. You get paid what youre worth only if you sell solutions, not commodities. Dont lower your fee unless your client agrees to reduce the value of services received.
About the Author
Robert Middleton of Action Plan Marketing works with professional service businesses to help them attract new clients. His web site is a valuable resource for anyone looking for effective marketing ideas.
Robert Middleton
robmid@actionplan.com
URL
http://www.actionplan.com
robmid@actionplan.com
http://www.actionplan.com
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