One of the toughest questions beginning and experienced service providers wrestle with is: “How much should I charge?”
You probably have a standard fee, or range of fees, you want to charge (or have been charging) your clients. But is it the right fee? The amount of money you charge and how you presentthis fee to your potential clients plays a big role in determining whether you make the sale and get the project.
Charge too little, and you diminish your prestige and importance in the eyes of your client. You also diminish the perceived value of your services and dramatically reduce your own earnings. A low fee may get you a contract you might otherwise have lost, but will you be happy doing the work for so little money?
People who sell products don’t worry about this too much, because they can usually make it up on volume. But when you are selling your services, you are also selling the finite amount of time you have available to perform these services. In fact, time is your only money making resource, and there’s a sharply limited inventory. So you can’t afford to give your time away too cheaply. On the other hand, charge too much and you may price yourself out of the market, losing out on jobs to other service providers who charge less.
Setting Fees That Bring You Maximum Revenue
Because each industry is different, I can’t go into a comparison of the hourly rates or project fees others typically charge in your profession or trade, how clients or customers in your market are billed, or give a detailed course on cost estimating for each type of service. That’s beyond the scope of this article. And if you’ve been in business for any length of time, you already know these things about your own industry. But I do want to ensure that you charge your clients competitive tees. These are fees that bring you maximum revenue without causing you to lose those projects you want to get. Fees, in short, that win you the sale.
Here are four important factors to consider when determining what to charge the client:
- Your status.
Are you a beginner or an old pro? Are you well known in your field and highly recommended…or are you still waiting to be discovered by the masses? Are you a novice, learning your craft as you go or are you really a master at what you do?
And do you just thinly you’re good, or do you have the client list, testimonials, referrals, and track record to back up the big fees you want to charge? Because of their status, experienced service providers generally can command higher fees than beginners. But ability is even more important, so a highly talented novice is worth more to clients than a hack, no matter how long the hack has been working. Still, as a rule, those who are less experienced set their fees at the lower end of the scale; old pros, at the higher end.
But be careful about under-pricing yourself.
Beginners have a tendency to set their fees at the absolute bottom of the scale, reasoning that they do not have the experience or credentials to justify higher rates. I used this strategy myself when starting out, and I suppose it makes sense. However, clients will probably take you more seriously if you put your fees in the range at medium to medium-high.
I have found that the less a client pays for a job, the less he or she respects the work and the person who produced it. One beginner I know charged, during his first year. fees that it had taken me four years to get up the nerve to charge, and he had absolutely no trouble getting them despite the fact that he was young and lacked heavy experience. So I may have lost a lot of money by charging too little for too many years. I hope you don’t make that same mistake!
- The going rate for your type of service (i.e., what the market will bear).
Unless you are the No. 1 great guru of your industry, or the most in demand contractor in your town, your rates will have to be Somewhat reflective of what the standard rates are for your type of service. And even it you are the great guru, there’s still an upper limit to what most clients can afford or are willing to pay you.
In some industries. pricing is fairly standard. Some service fields are regulated; in others professional societies or codes of behavior set fee guidelines. On the other hand, many businesses have no such standards, and their fees, as one professional put it, “are all over the lot.” For example, in my business–direct mail copywriting–fees for writing a sales letter range from $100 to $20,000 and up!
The variation in fees in many fields is tremendous. However, by talking with a few prospects, you quickly get a sense of the upper and lower limits you can charge. You may find, for example, that some homeowners expect to pay $1,000 for landscaping, while others are willing to spend $10,000 or more. But no one expects to get it for $200, and no one is willing to go above $20,000. After a few initial conversations and meetings with potential clients, you’ll get a good idea of what the market will bear.
The important thing to remember is that you are not locked into an hourly or project rate because you quoted it to one client. You can experiment with different rates, until you find the right range for your services and your market.
- The competition in your local area.
Call some of your competitors and ask them what they are charging. Many will gladly tell you. If not, you still need to get this information, so it’s acceptable to do so undercover. Call or have a friend call a few of your competitors. Describe a typical project, and get a cost estimate. See if they have a published fee schedule or price list, and ask them to send you a copy. Finding out the competition’s fees is a real help in closing sales. You learn just where to price yourself in relation to other firms offering similar services. You’ll also benefit by asking your competitors to send you their brochures and other sales materials. By reviewing these materials. you can learn much about their sales and marketing approach.
- Your current financial need.
How much do you need the work and the income? In some situations, when cash flow is slow, you may feel financial pressure to get the work. At other times, you may not need the money but, psychologically, you need to close the deal in order to feel successful and good about yourself. Your need to get the work should not really be a consideration in setting your fees. But, practically speaking, it is for most of us.
If you’ve got a million bucks in the bank, or dozens of top corporations are knocking at your door, begging you to make space for their projects in your busy schedule, then obviously you don’t need the work, and this helps at the bargaining table. If the job isn’t right, or the prospect gives off bad vibes or haggles over your fee, you can walk away without regrets.
If, on the other hand, the rent check is three weeks overdue, and you haven’t had a phone call or an assignment in the past two months, you may be willing to take on a less than ideal project or client who if he senses your neediness may use this to his advantage in price negotiations. Ideally, you should negotiate each project as if you don’t really need or want the work. But when you’re hungry and/or just starting out, this isn’t always possible or even wise.
Sometimes, you need the ego boost that comes with landing a project or being busy with work. For the service provider, “psychic” wages can be as important as the green, folding kind.
