As an independent consultant or soloist, we have all gone through the mostly awkward “first date” with a new prospect. You meet and decide there may be an opportunity for a mutually beneficial relationship. Or maybe, you are introduced, a blind date so to speak, and you are not sure if there is room for a working relationship, but your mutual friend introduced you so you mind as well meet.
Thanks to the internet and today’s social media resources, you have the ability to show up to your first date feeling like you already know your prospect, personally at least. Unfortunately, you may not have access to the key points that you would like to know; professional information and details about their business. For instance, what are his or her top business objectives? Does s/he have any urgent needs this quarter or big projects planned? What about revenue and budget? Yup, all those awkward questions you will have to politely ask him or her yourself!
So, the “dating” (prospecting) begins! It may have been love at first sight and you want to rush into a relationship; in a professional capacity that means getting a contract signed and taking things to the next level. But rushing the process may result in a broken heart. What I mean is when you rush into things with a prospect it is important that you adequately complete your due diligence. Qualifying a prospect and understanding his or her needs, business and priorities will lay the foundation for a long-term partnership.
Without adequate details of their business, it is easy to over-inflate the value of your services. When you are not on the same page as your prospect, you are likely to run into a pricing error. In most cases, we are guilty of setting our fees or rates too high. Maybe your prospect does not want to allocate $1,000 a month to marketing because s/he has a PR strategy in place that takes precedence. But, maybe s/he values marketing enough to spend $500 a month, something you would not find out without adequate due diligence.
Pricing to Prosper
Pricing higher than clients are willing to pay is an easy mistake to make, it is also relatively easy to correct. At Rainwerks, we call this a Type I Pricing Error. To avoid losing new clients due to a Type I Pricing Error, it is important that you understand the factors that shape your clients willingness to pay.
Whether you price your services at an hourly consulting rate, a monthly retainer, or on a project basis, your pricing should be strategically determined and in line with the value you provide. Your fees should also be easy to articulate to prospects and competitive within your market. You do not want to end up in a situation where a prospect does not have a clear understanding of all that they are receiving with your price tag!
To understand a prospect’s willingness to pay, consider these two factors
- Is your prospect qualified?
- What “reference pricing” does your prospect have in mind?
Both of these factors determine your prospect’s price threshold, i.e. the value they place on your services. If understood, these indicators can help you influence your prospective customer’s willingness to pay and lead them closer to your price target aka the price you want to charge.
I. Qualifying Prospects
Qualifying the customer/prospect is the most important step in your process when it comes to achieving a desired price point. You should sell your services only where you’re a good match with your prospect’s needs. Try to discover this before you invest much time with a prospect. To avoid this situation, ask yourself these questions:
- What need or aspiration is the prospect trying to address?
- Who holds the purse-strings?
- How long is his or her decision-making process?
- What steps are involved in the decision-making process?
- Are there other priorities/projects higher on their list?
Basically, to put this in dating terms: do your short term and long term goals align? Is someone else involved in the decision making process? Are they ready to get serious or are they still “dating?” Once you are confident that you are on the same page with your prospect, you can begin presenting your proposal and your pricing, but don’t rush it or you may scare them off!
Unless and until your prospective client has a funded and motivated need, they may not have the “table stakes” to move forward. Keep in mind, this can be tricky to determine because all businesses have different buying cycles, and priorities can quickly change…or they may just be leading you on.
II. Comparative Pricing
As an independent consultant, pricing can be exceptionally challenging because you are providing an out-of-the-ordinary service for which there isn’t a “market price.” That can also be an opportunity. Once you understand what is influencing your customer’s price point expectations (if any), you can better understand your customer’s willingness to pay.
Understanding your market and competitors is important for reasons beyond pricing. As I mentioned in previous posts, your value proposition/differentiator is crucial to the success of your business. Knowing how you stack up against others allows you to improve your elevator pitch and stand out from the crowd. Did someone break their heart before and now s/he is jaded? Bad practitioners do exist; show your prospect how “you’re not like that, you’re different.” Because differentiating yourself puts you in a more even power position and opens a window for you to influence your prospect’s willingness to pay.
Understanding a customer’s willingness to pay is crucial to attaining new customers and running a profitable business. But if your customers want to pay you less than what you are willing to sell your services at, then they may not be the type of customers you want. That is why it is important for you to understand your pricing threshold and how you determined that number. To learn more about the price in which you are willing to sell check out [article name here].
Also keep in mind, as an independent consultant, determining pricing should not be a once-and-done effort. Pricing should be dynamic and reassessed at least annually. If pricing errors have been a burden to your business, it may be time to consider soliciting help.
Rainwerks offers a one-of-a-kind program designed to help soloists achieve a well-researched, competitive price. The Pricing to Prosper programSM is a virtual course designed around these five issues:
- The Problem & Consequences [of Pricing Errors] – and Setting Yourself Up to Prosper
- The Customer’s Willingness to Pay
- The Prices At Which You’ll Sell
- Pricing Your Next Proposal
- Modeling Your Pricing Decisions
Robert “Bob” Sherlock developed this 5-session program to support soloists through the tough decisions that come alongside an independent consulting career. Bob explains, “I knew a lot… but I wasn’t using an organized framework to guide my pricing decisions and the closely related area of how I marketed and sold my consulting services. In this program, I want to give you an organized framework. This program will help you do a better job of organizing your thinking so you can make better pricing decisions and conduct your marketing and business development conversations in a way that supports your pricing aspirations.”
Don’t let the “fear of famine” cause you to reduce your prices below the value of what you provide clients. All work should be worth your while and bring value to your customer. If you are looking for more information on how to accurately and effectively price your services, check out our Pricing to Prosper virtual course.
Click here to learn more about Pricing to Prosper.