When you’re essentially selling time, how do you set your rates? First you need to decide if you want to be at the top or the bottom. You can offer the best for a premium price, or you can sell lots and lots of cheap stuff. Why not settle for the middle? Anyone can do a decent job for a fair price. There’s nothing wrong with that, but that field is full of competition. You may as well work for someone else.
I’ve met many, many entrepreneurs who under price their services. Perhaps it’s a lack of confidence initially in one’s own ability, or maybe it’s just ignorance about the market rate. Whatever the reason, charging too little for your services is self-sabotage for two primary reasons:
1. When you don’t charge enough you end up resenting your business. You do too much work for too little money. It’s not worth it. This is especially true in the beginning when you’re still learning your business.
2. A low price tells clients you’re not worth it. It may be all smoke and mirrors in the beginning, but if you want to be perceived as the best, you’d better price your services accordingly.
I learned this in tax accounting. I’d worked for a Big Four firm serving high net worth clients, and then a small partnership whose client base was mostly older, town-founder types. At both places, image was important. We dressed up for meetings and presented the bill on expensive stationary. Junior staff were given plenty of time to develop skills. Clients occasionally balked at the digits on their invoices, but they paid the bills anyway – on time. And boy, were they loyal. After all, we were the best in town.
Trailing spouse that I am, I found myself at another small firm. The partners were less of a team and the marketing plan, if there was one, wasn’t well articulated. As a result, some partners, in an effort to build their own business, underbid services on low quality clients. As a result we ended up with lots and lots of low-fee jobs. These were the kind of taxes that could have been handled at a national franchise where they pay non-professionals just above minimum wage. Instead, our educated staff were pushed to get things done as fast as possible to keep projects profitable despite the low fees. Mistakes were made. Clients nitpicked and tried to get additional discounts. Accounts receivable grew. It’s no surprise some clients left as soon as the next low bidder opened up shop.
Remember, people value things by price. That’s why I’m sitting in Starbucks right now drinking a $4 coffee. (And no, I don’t think $1 coffee is their best move.) Decide what you want to be, then go for it. Just don’t give it away.