How to price your services

Pricing your services is a challenge for most of us. Too low, and you’re overworked and underpaid. Too high, and you may lose too many leads.

Here’s the 5-step method I use to price my services. This technique can be applied to products as well, but there are enough differences that I will cover that in a separate article.

Step 1: Establish your baseline

This is a simple calculation, but we’re not going to charge by the hour:

The baseline calculation

If you work 40 hours a week for 48 weeks a year (4 weeks off), you have a total of 1,920 working hours. Important: assume that only 50% of those hours will actually be spent working on client projects (the balance will be for marketing, admin, sick days, project overruns, and so on).

That leaves 960 hours for actually working on client projects—these are the hours where you do the work you get paid for.

You have to generate all your revenue in those 960 hours. For example, if you want to earn $100K per year (before taxes), you need to generate around $104 per hour. For an income of $200K per year, you need to generate $208 per hour.

But we’re not going to charge by the hour

This amount ($104 or $208 per hour) is your baseline. But we’re not going to charge by the hour.

This amount simply says that if you estimate that a client project is going to take 100 hours to deliver, you need to charge them at least $10,400 (or $20,800) for the project.

Step 2: Review perceived value

When you present your pricing to your clients, make sure they understand the value they’re getting.

For example, if I tell a client that I have 3-month coaching packages, we meet once a week and it will cost you $3,000, they will make the hourly calculation: “that’s 12 hours for $3,000 which is $250 per hour”.

You can (to some extent) avoid this hourly calculation by adding to the perceived value. For example, I could say:

My 3-month coaching package costs $3,000. We meet once a week for an hour, and while you’re in my program you can email and text me any time. If I’m available, I will respond immediately, and if you need a quick call to discuss a sticky situation, we can do that too. You also have access to my private library of tools and articles which are a valuable resource for dealing with specific situations. We will be using my coaching tools to baseline your situation at the start of the program, measure improvements, and review your progress towards your goals every 4 weeks.

Now, rather than doing the hourly calculation, my potential client is looking at all the “extras”. There’s a lot more perceived value, so the total price seems more reasonable.

Step 3: Do a competitive analysis

If you can get prices for what other people in similar niches charge, make sure you’re not at the bottom of the price range. Pricing too low will devalue your services, so make sure you’re above the median.

It can be difficult to get competitive pricing, though. But a little Googling can be revealing—for example, this article has some interesting insights into pricing for coaching services.

But don’t let competitive pricing lead you to price too high or too low. Your confidence in the value you provide is more often what will help your clients decide if the price is worth it.

Step 4: Relate price to ROI

Relating your price to the value your clients will be getting is one of the most powerful ways of justifying your prices (and making more sales). If you can’t relate price to ROI (for example in life coaching), don’t use this method.

This is a whole topic in itself, so let me demonstrate with a short example.

Let’s say I develop websites for dental practices. Here’s the kind of conversation I could be having with a potential client:

The average lifetime value of a dental patient is $10,000. With a better website, we believe we can get you 40 to 50 clients per year more than you’re getting now. That’s $400,000 to $500,000 added to your future cash flow every year. The website makeover we’re proposing is $20,000, so the break-even on your investment is around 9 months after the new website goes live. The ROI after 3 years is around 6X.

There are two things at work here:

• I know my numbers (and the numbers relevant to my clients)
• I’m confident I can get them those additional clients.

And if I can back up my claims of new clients with some references, most clients will say yes to my proposal.

Step 5: Apply your confidence

Most of our hesitations around charging more for our services is in our heads.

• We don’t want to charge more because it “seems expensive” (that is purely your perception and has nothing to do with how your clients perceive the cost or value).
• We’re afraid we’re going to lose clients. (Do you really want to do low-cost work for non-ideal clients?)

If you’re confident you can deliver value, price your services accordingly.

One of my favourite example is Pia Silva at WorstOfAllDesign. They currently charge $9,950 for a 2-hour interview with a written report, and upwards of $35,000 for a 1-day “brandup”.

This is pure confidence at work. Their prices have steadily gone up, up and up over the years. Pia is superbly confident that she (and her team) can deliver value, and is not afraid to charge for it.

Value, like beauty, is in the eye of the beholder

Use the steps above as a guideline to price your own services. Use what’s useful, discard the rest. Remember that what your clients perceive is what will sway them towards buying or not—and a lot of that perception is based on how confidently you present yourself and your offering.

And finally, always offer at least two options, but no more than three. When you offer a choice (more features, deliverables, additional support), you literally double your chances of making the sale.