With all the info I’ve learned so far in establishing myself, I’m finding it to be “taboo” to ask what a reasonable asking price should be. While I earned a comfortable living as an employee, I have done some research enough to know that I should charge an amount that would allow me to buy good medical insurance. Why is it such a no-no to ask colleagues what to charge? Some of them are offering their services well below what I would consider a decent wage. I have more than 18 years of experience in the executive assistance world. I don’t want to out-price myself but I don’t want to undersell myself either. Can you provide guidance on where to start on this perplexing and critical issue? –AK
The reason you’re running into problems getting this question answered directly is due to antitrust laws. It’s against the law for businesses and industries to “conspire” to fix industry pricing standards.
But don’t fret, because what you need to know isn’t based on what anyone else in the industry is charging. In fact, one of the worst strategies you can employ (if you even want to call it that) is looking at what your peers charge–especially since most of them are not in fact earning well or charging profitably in the first place (as you recognized).
In our industry, people do struggle in this area. Some of that has to due with lack of business knowledge or sense. Some of it has to do with many people entering this field and still thinking in terms of being an employee. They don’t understand that this isn’t a job, but rather a business and a profession. They then end up charging what amounts to an employee’s wage (without any of the requisite benefits!) because they just don’t know any better.
But you don’t have to fall into that trap and asking the question shows that you are a sharp, thinking person who is well on her way to business success!
The first thing you want to look at (and I would review this every year) is what it costs to run your business. That means adding up and anticipating all the overhead, expenses and capital outlay involved in your business. We have a free, automated Income & Pricing Calculator (in Excel format) that will help you do just that.
Two of the most important things you’ll also want to account for in your calculations are 1) your own salary and 2) creating profit. This is because you shouldn’t just be operating to cover your business expenses. Think of your own salary as above and beyond all your other operating costs and expenses. You’ll therefore want to make sure you’re charging enough to not only provide for the business, but also pay yourself a salary on top of that.
You also want to create profit because it is what allows your business to grow, makes sure there is operating capital during lean times and, perhaps most importantly, it gives you choice in your business. Lack of money creates lack of options. Lack causes you to step over your standards and feel forced to accept things or make choices that aren’t ideal for you or your business. That is often the death knell for businesses. In that situation, many ”die” before they ever get a chance to get off the ground for that very reason.
Pricing is also every bit a marketing strategy as anything else. Price too low and the message you send to your marketplace is probably going to be that you aren’t top quality and that what they’ll receive may be unskilled, amateur or subpar. Many good clients with needs you are every bit qualified to support will pass you by because of that message and the perception it creates. Pricing on the high-end (as long as you’ve got the chops to back it up) tells them that you’re an expert in the field and they’re going to get real quality, skill and value.
Now, if you’re like most people entering a new industry or business, just because you may have every reason to price at the high-end doesn’t mean you necessarily have the confidence at first to do that. And that’s okay.
You’ll grow into your confidence as you work with clients. It will become easier and easier to charge exactly your right rate, one that not only sustains the business, but creates profit and honors the skill, expertise and value you provide clients.
I would definitely recommend that you at least try to start somewhere in the middle of the average industry range, even if it makes you uncomfortable. Be uncomfortable (and get used to feeling that way)! If you aren’t ever uncomfortable, it means you aren’t growing or stretching. And one thing you definitely can’t do is operate at a loss.
The other side of pricing as a marketing strategy is who you attract. Price too low and you’ll attract all the worst kinds of clients, the ones who always want something for nothing, always complain and never respect you or your services.
But when you start pricing more appropriately and professionally, you’ll begin to see that it attracts a whole other (higher) caliber of client. These clients are more interested in value and quality. Cost is less of a concern for them and they definitely aren’t looking for something for nothing.
They are focused on accomplishing their objectives and running smoothly, and feel that any solution that helps them do that well, happily and easily is worth its weight in gold. They know that a solution like that pays for itself and that they get out of it far more than they pay for it. They are typically more successful and established and because they have a higher quality of business-mindedness, they are much easier to work with.
So keep all that in mind as well. Your price is going to attract a certain group or mindset of clients—which kind do you want?
Pricing professional services is a field of study in and of itself. Your learning in this area of business will be constant, ongoing and evolving throughout the life of your business. But hopefully, this helps give you some direction and food for thought to get started.