Knowing Your Worth: Set The Right Price With Value-Based Pricing

One of the biggest challenges of running your own business is knowing your worth.

Prices that turn profits are an essential part of your business model, but it’s a slippery slope. Price too high and you step out of your customer’s comfort zone, charge too little and you undermine your worth and outcomes.

As a business coach and business consultant I have a lot of clients coming to me with cash flow challenges where they are unable to turn a consistent profit, even when they have a great product and audience. In a lot of cases I can trace the heart of the issue back to one source: Pricing.

When working with clients around money mindset, the pattern I see is that it’s not about a lack of education or understanding of how much the company needs to run, it’s about forgetting to factor in how much you are worth as the business owner and the input you bring to the table.

Setting the Right Price for Future Growth

Correct pricing and knowing your worth is a big part of your business success which is why I teach clients how to create a six-figure income as part of my business growth program, but the growth and success isn’t up to me, it’s up to them. I can give them all the advice and tools I have, but they need to do the work. So how can I justify getting paid? I have to see my self-worth and understand the value of my input in order for my business to keep operating.

The truth is that without me, they would never be able to see their business flaws and correct their mistakes because they are too close to the problem, but I don’t actually reach into their business with a metaphorical spanner and make the adjustments…they did.?

The answer? Absolutely give them the credit- it’s due, but also charge what you are worth for enabling that process to take place.

Starting out most business start-ups attempt to put a dollar sign on their time, say for example, $65.00 an hour. This seems safe; it’s easy to measure and it looks reasonable to your client, but there is a danger that you may undersell and struggle to cover expenses. This creates a danger zone where in order to make ends meet you need to scale down your budget, so you’ll be looking to cut staff, equipment and downtime, or at least put plans on hold until things ‘turn around’. There is no doubt that reducing your systems is going to lead to poorer quality for your clients…you can guess where I’m heading with this.

If you are selling a service then you are selling more than your time, you are selling results. The result of losing weight, the result of gaining confidence, the result of doubling your income, the result of getting your marriage back on track. The value of the results is where your pricing should be set.

Unlike a solid product they can wear, hold in their hand or hang on a wall, your clients may not associate the benefits gained from consultancy or freelance work directly to you, or if they do, the value of that purchase can be forgotten over time. You need to set the record straight by knowing your worth and phrasing your products in a way that focuses on the results you can deliver.

Set the Right Price for Your Service

To help move your prices from time-based to results-based you can use a value-based pricing model.

In the case of value-based models you consider what the perceived value will be to your client.

The premium you charge will take into account your personal skills, experience and knowledge, which is what your clients are buying: skills that they do not possess themselves as well as years of proven experience and a road-tested plan.

It’s important not to underestimate the value of what real-life experience brings. Experience is a big package that may accumulate gradually so you don’t always acknowledge its full weight. As you gain expertise in your field and industry you’ll generate a solid working knowledge of inside interactions, communications, industry terms, equipment and tools. You will also have a working history within your niche and be up to date on changing trends and new practices.

You can build all this into your price from day one and increase your asking rate as your business skills and abilities grow.

Knowing Your Worth: How to Price Yourself Correctly

By evaluating what you can do and feeling comfortable with your business worth you will be able to understand and clearly communicate the results your prospective clients can expect.?

Knowing that the client’s return on investment will far outweigh what they spend on hiring you gives you added confidence in business meetings, handling referrals and conversations around sales.

Here are five ways to detail your business worth for you, and for business prospects:

1. Itemise Your Skills and Values

Make a detailed list of your skills and values. Include relevant education, training, contacts, experience and results you have produced for other clients.

With each of your skills and abilities list what value your client will receive.

You will also need to include any costs you incur to achieve your result and have those covered. If you find an outsourced price is not viable, consider replacing it with a different system, creating alliances with other business owners or referring some of your tasks out rather than billing them yourself.

2. Create a Portfolio

If you were applying for a position in a company, you would prove you were capable and eligible for the position with a resume. Offer your clients the same information by creating a portfolio that captures your relevant background, education and experience as well as a snapshot of your work history.

Also include testimonials from previous clients. Ideally use testimonials that address high-value products and services.

3. Avoid Discounts

Discounts might appear to be a great way to warm people up to your services, especially if you are the new kid on the block, however, it can backfire if questions arise about the validity of your original prices (if the gap is too great) or you can’t turn a profit because the discounts are too low, or run for too long.

Discounts require careful thought and consideration. You need to know your profit margins and only offer reductions within your limits.

As a general rule, wait for your client to ask for a discount rather than offer one straight up so you’re the one who sets the price.

It’s always best to add value rather than a discount. Throw in a bonus product or additional service to bring up the value of your service and make it extra appealing at the original price.

4. Be Transparent

Explain your pricing system to your potential client. Give them accurate delivery dates and explain everything you expect them to do for their part in the project. Keep them informed of your progress, notify them if you encounter any delays and give them choices if you run into problems.

Remember to keep clients in the loop for good news as well, don’t wait for a disaster, let them know that things are on track.

It’s a good idea to keep tabs on their business performance. As soon as you notice positive changes start noting them down. Refer to these when it’s relevant and appropriate, you’d be surprised how many times progress can go unnoticed. Keeping in touch with them after your service is completed is another great way of gently reminding them of your input to their success, their progress updates will also be great for your portfolio.

5. Be Flexible with Payments

Upfront payments might not work for everyone, so have some additional payment options on hand. This will also help vary your income so you will see some upfront payments and some instalments which will give you more flexible income access that can be better aligned to your different expenses.

Consider offering incentives or discounts for upfront payments so those who can afford it will be motivated to take this option. You can also have service instalments, one example that works well is part payment before commencement, part payment halfway through and final payment on completion. You will need some kind of guarantee that means they don’t have access to the final piece until full payment is made.

You can also look at organising direct debit payments that occur fortnightly. There are a number of service providers who can facilitate this at a low cost.

The best way to add worth is to remove risk

One of the easiest ways to provide high value is to offer a money-back guarantee. It means your client can purchase and feel safe about investing in something that will work. Again, we hit the same problem that results are not always tangible, which means determining if someone was ‘dissatisfied’ or not is impossible. Consider terms and conditions that include that the client must have completed their obligations and requirements in order to qualify for a refund.

Knowing your worth and having value-based pricing is crucial for the growth of your business. If you would like to learn more about how you can get this right from day one, book a free strategy session and we will get you on the right path.