December 15, 2016
Reader questions re pricing productized services
In my podcast episode on productized services (Ditching Hourly episode 14), I offered some guidelines to help folks pick a starting price for a new service. My advice left a few people scratching their heads, so in this message I will provide some more context and describe some exceptions.
Typical situation...
Most people I work with have been doing ad hoc freelance and consulting projects in which they are treated more like a pair of hands than a trusted partner. As such, they are pretty bad at articulating (or even knowing) what their actual value proposition is.
In other words, they know what they’ve been hired to do, but they don’t know why. And they rarely know or understand the benefit of the work in the client’s mind.
If you fall into that camp, my advice in the episode - to probably start with a price in the mid 3-figures - should provide a good guideline for you to start selling a productized service. You won’t be making a fortune, but you’ll be getting client feedback that will open your eyes to the value you are creating. As this progression continues, you can raise your prices, lower your costs, and increase your profits.
But... exceptions!
If on the other hand, you DO know what your value proposition is and you DO have a pretty good idea of what the outcomes you provide are worth to your clients, you don’t need to start with a 3-figure price.
It’s fairly rare, but on at least two occasions I have advised students to start with a higher price because:
- They are recognized authorities within their target market. For example, one of them gives keynote presentations on his area of expertise at industry conferences frequented by his buyers.
- The value that they provide to their clients is unusually high and easy to measure. For example, one of the students can credibly claim to reduce a client’s costs by more than a hundred thousand dollars annually. In a case like this, a starting price in the 3- or even low 4-figure range would leave way too much money on the table.
- Their competitors charge in the mid to high 5-figures. Presenting a price that is an order of magnitude lower than your competition will undermine the credibility of your claim. A prospect who is considering one alternative that costs $65,000 is not going to take you seriously if you offer a similar outcome for $495.
Bottom line
The bottom line with pricing is this:
If you’re confident that you can sell your productized service for more than I suggest in the podcast episode, then by all means, do it!
My advice on this topic is more for folks who are not yet confident in their pricing, are unsure of their value proposition, and have no idea where to start.
As always, thanks for the questions. Please keep them coming!
Yours,
—J