“Price is what you pay; value is what you get.” – Warren Buffet
As we’ve said throughout this series, pricing is hard. It becomes even harder for many businesses because the first two actions we are tempted to take – checking what our competitors are charging and charging by the hour – are bound to lead to disaster.
The value you are providing is unique to you, so basing your prices off of competitors pricing is a bad idea. Charging by the hour is even worse.
Don’t start by looking at your competitor’s pricing.
In general, people start a business because they see a need in the market: There’s an area that’s going unfulfilled, a demographic that isn’t being serviced, or an aspect where product or service quality needs to be increased.
A successful business owner leans into these gaps and creates a business which is unique and valuable to the market. Therefore, it doesn’t make sense for them to base their pricing on what’s already available, does it?
Yet this is where most people start: They figure out who they think their competitors are, find out what they charge, and then charge roughly the same.
The problem with this logic is that you are often doing (or planning to do) something better than your more established competitors. After all, if they were doing an all-around stellar job, would you want to enter the market and compete with them? Definitely not. There wouldn’t be a need.
Instead, we start businesses because we want to provide a better-quality product or service to a specific market. The problem is, that extra value usually costs extra money, time, ingenuity and/or resources.
So not only does the logic not make sense, it is probably also going to cost you money in the long run.
For more on this, check out Part 2: Are You Making These Common Pricing Mistakes?
That’s not to say you shouldn’t be aware of what the competition is charging but move it to the last step on your list rather than the first – Use it as a tweak rather than a starting point.
Do NOT charge by the hour.
Practice makes perfect, right? The better and more skilled you get at something, the less time it takes you to complete it.
Therefore, if you charge by the hour, you are penalizing yourself for getting faster and better at whatever you’re delivering.
A much better strategy is to charge by the project for any product or service that’s not, by definition, a time-based occurrence such as a one-off hour of consulting, coaching, or speaking.
For more tips and tricks on getting the most out of your current pricing strategy – or for help developing one – contact us today!