Close your eyes and envision your ideal work environment. The set-up of your work station, dual monitors positioned right at eye level. The color of the walls, a soft blue that upon entering lowers blood pressure and puts your mind in a calm, almost meditative state. The smell; fresh coffee accompanied by the sound of soft jazz humming in the background (or a desolate beach).
Now, open your eyes…probably pretty far from what you are looking at. Me too. I know the monitors in my home office are slightly too low, causing a frequent neck-ache, my walls are more of a nap-inducing beige, and I smell a dog toy hiding somewhere nearby. The good news is, I am all set with the jazz music!
The reason I am defining my ideal work conditions is because I know there are some things I can control and some things I cannot. In an ideal world, one’s work environment would be a controllable factor. The truth is, most of us are fortunate enough to have other people in our lives and households, making our work environment more challenging to control than one would hope.
The Factors You Can Control
In a previous post I highlighted the “best of both worlds” and the benefits you reap when “ditching” corporate America for an independent consulting or coaching career. The truth is, independent consulting is not all sunshine and rainbows. There are pros AND cons in the independent consulting world, just as you would find in a corporate position. While you have the opportunity to work from home, you may not have the same peace and quiet that you previously enjoyed at your corporate office. Fortunately, as a solo consultant or coach, you may greatly enjoy working for yourself and focusing your efforts towards a field that interests you.
Nevertheless, as an independent service provider, the flexibility that you are privy to and enjoy vary from consultant to consultant. Some of the most frequently recognized benefits that come along with independent consulting work are as follows:
- Being your own boss
- Flexibility to choose your work/industry/clients
- Freedom to work when you want
- Ability to charge what you want
Which of the above drew you to the independent consulting field? Or was it something else?
Conversely, there are cons in this line of work:
- Administrative burdens
- Always selling (although this may be a “pro” for some of you, not a con!)
- Negotiating prices
Notice how pricing is both a pro and a con? Well, that is because determining your prices can be a major headache. If done properly, pricing can lead to satisfactory margins, reoccurring client relationships, and a growing business. So why is defining your prices such a challenge?
Pricing is a challenge because as an independent consultant, you may have a hard time finding a happy-medium between the price in which you are willing to sell and the price in which your [prospective] clients are willing to pay. Since you work in an industry that most likely does not have a “market price” for the services you provide, independent consultants frequently run into one of two pricing errors:
Type I Pricing Errors: Charging more than the client is willing to pay.
Type II Pricing Errors: Charging less than the client is willing to pay.
Type I pricing errors were discussed in a recent blog post titled The Price Clients Will Pay. Typically, a Type I Pricing Error is easier to identify and resolve than a Type II Pricing Error. Hesitation on a price that is too high can be recognized and resolved and typically occurs when the prospect is not properly qualified or because the prospect’s reference price is inadequate. Comparing apples to oranges for instance. Type II pricing errors are a different beast.
Pricing too low may not cause you to lose as much business, up-front at least, but it will certainly harm your reputation and cause a credibility problem in the long run. So how do you know when you are pricing too low? Well, you don’t. All you can do is push the boundaries on pricing and terms until you reach a price that your customer is willing to pay and where you are willing to sell.
This can be done on a customer-to-customer basis (or project-to-project) or you can use an organized framework to determine your pricing threshold from the start. When using an organized framework to determine your pricing, there are four important factors to consider:
- Qualified Customer Value (QCV)
- : QCV is the amount a
- customer would pay for your services along with the degree of preference your customer has for you.
- Comparative Pricing
- : This can include previous prices charged to the client, competitors’ prices, substitute prices, or prices of analogous services.
- Cost + Target Margin
- : This is simply the estimated cost for providing a service (time and expenses) along with a target pre-tax profit margin.
- Concern with Volume
- : Given your desire to sustain a sufficient volume of business and your prevailing assumptions about price sensitivity (lower price = more clients or vice versa) you may be more inclined to charge a lower price due to a “fear of famine.”
Achieving your optimal price point for all soloist engagements will help you earn what you are worth. You will also gain credibility with clients, and move closer to earning the dependable living that you deserve! To think, pricing is a factor you can control!
To learn more about the four factors Rainwerks uses to determine pricing, check out our virtual course, Pricing to Prosper!
Pricing to Prosper was developed by Robert “Bob” Sherlock to support independent consultants/soloists through the tough decisions that come alongside an independent consulting career. When Bob began his independent consulting career he knew a lot, but he was not using an organized framework to guide his pricing decisions. Through Pricing to Prosper, Bob wants to provide you with that organized framework. His 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.