Depending on what you’ve accomplished and your experience in what you do, there has to be a price tag on your time and work. How do you set that price? You base it on two variables: How you want to position yourself (how you want others to think of your practice), and what others get paid for similar services in your community. Once you come up with a pricing structure, you have to be relatively consistent with it in order to further establish your brand in the minds of your prospective clients, customers and patients.
There are a few different pricing models with which I’ve become familiar. The first one I’ll mention is great for establishing yourself when you are new in a community. Foothold, or toehold, pricing is not a profitable pricing model, but it’s a great way to get started. You set the price as low as you can afford to, hoping to undercut competition and attract people who consider price to be the most important consideration. You can use this kind of pricing model as a door opener, (first visit free or at a reduced price), or hold it steady for a while until you are well established.
In the speaking and training business, there are people who will work for between $100 and $900. More often than not, they are just getting started, and their pricing model makes this clear. But for budget strapped organizations, this can be attractive. Not the best speaker or educator, but the affordable one, gets the contract. In natural healthcare, docs opening clinics can hope to draw people in by pricing themselves relative to the low end of the market, as a way of getting established.
The next pricing model conveys quality. Quality pricing, luxury pricing, exclusive pricing, is based on the idea that if you have to ask about the price, you can’t afford it. This high end pricing attracts those interested more in experience and value than they are in the dollar figure. In fact, I once lost an engagement with my favorite company, Apple, because my price was too low. Here’s the story.
I got a phone call back in the early 1980s from one of my students. She had gone to work at Apple, and said she was in a position to hopefully bring me in to the company. Her interest was that she was certain what I teach would prove invaluable to the company. She asked me to submit a proposal, and that she would personally get it to her boss, who had the decision making authority. I was thrilled. I had an advocate, a fan, in the company. Surely this would give me a leg up! And truth to tell, I would have worked for free. I LOVE APPLE! So I priced my proposal very low. And I never heard back from her.
Finally, I couldn’t stand the suspense any longer. I called her, asked if she had received the proposal and shared it with her boss. ”Yes,” she said, “but they decided to go with someone else.” I asked her if she knew what the decision was based on, since I thought I had offered a very attractive program at a very competitive price. She replied, “When they saw how little you wanted to charge, the assumed you weren’t very good.” Ouch! Lesson learned. If you’re not willing to charge what you think you’re worth, others will agree with your low assessment and commit not to hire you and pay what you’re worth.
The final pricing model may be the most practical one. I’ve heard it referred to as Cost Plus pricing. Basically, you determine what it actually costs you to deliver your service, then add a specific margin of profit onto it, a margin that allows you to comfortably stay in business as your business expands. I’ve been asked why professional speakers and trainers often charge such a high fee, and for me the math makes it obvious. When you add up the number of hours preparing a program, getting to the program, delivering the program and returning from it, then factor in the business you must turn away while doing all of the above, it comes out high, or else you’re essentially doing it all for minimum wage! Factoring in tangible AND intangible costs (time away from family, the risks of travel, etc.) is important so you are adequately compensated for the effort given to a project.
These pricing models can be mixed and matched. But the key is consistency. If people find out you charge one group of people one price and another group another price, that seemingly arbitrary arrangement could come back to haunt you, by undermining your brand.
Comments? Questions? Feedback? Please let me know your thoughts in the comments area below. I’ll be back next time with another installment in this series.