This is a question that comes up on a regular basis usually relating to professional services but sometimes in relation to supplying products. So today I am going to look at professional services with practical suggestions that have worked for me and my clients over the years and
I will talk about products in the next post. So where do we start?
There are a number of key areas that need to be considered if you wish to get the full fees for your service which are identified below and I will go through each one.
- Having a clear understanding of what value you deliver
- Understanding your cost base
- Knowing your market
- Confidence is saying NO – part 1
- Confidence is saying NO – part 2
Having a clear understanding of what value you deliver
One of the most common mistakes people who supply services make is that they fail to understand the value they deliver. They forget that it took time, effort and money to learn the skills that they have acquired and therefore a potential buyer is getting the advantage of this experience without having to make the effort. This is compounded by the fact that the knowledge that you impart may only take a few minutes or a couple of hours of your time and therefore the potential buyer perceives it as something that is easy to do and so wants to pay what they think is the right price in their mind. I saw this over my 30 years as Managing Partner of a branding agency where clients would consistently say, it only took a couple of minutes or my son could have done that. What they were forgetting is that yes it took only a couple of minutes for someone who has spent years learning the skill.
I am sure that there are many of you out there thinking about how often you hear these words so the challenge is to counter them and here is a suggestion around that. You have to identify what material difference your involvement will make by identifying the pain it will solve or value that it will add. For example a surgeon does not get involved in debates over money because the patient has an obvious need and he/she has the skill to resolve it. If there is an issue over price the patient will be told to find someone else which seldom happens. So how do you make yourself indispensable to the client? You need to ask open questions to fully understand the real issues that they are having or what they are trying to achieve. Have you a list of questions to get to the real source of the reason you are having the conversation, if no create one. The real skill is asking searching questions that help the client understand the real depth of the pain or the size of the gain and to make it resonate with them. (if you want more details on the questioning aspect contact me using this link). Once you get to here your fees become less important in their eyes because like the surgeon they see the value in what you bring to the table.
Understanding your cost base
The second area is understanding your cost base. This is one area that most professional I have met over the years fail to understand fully and as a result under charge for their services. I have a couple of diagrams that illustrate some crude but basic maths that hopefully help you price out your services in a more profitable way.
When people see the 3x multiplier they say, wow, that is a lot but you have to consider that your employees will not be generating chargeable hours all of the time so that needs to be taken into account. Similarly, you are not running a business that just employs people on a break even basis so you must get a return on their work. These figures do not include the cost of replacing those who leave you, the cost of recruiting new people, the on-boarding process plus the ongoing costs of training, Again if you need help please schedule a call and we can talk about this further.
As you can see this area of the business needs time to ensure that you are capturing the right information and getting the correct return on your investment.
Knowing your market
It is very easy to be drawn into the wrong marketplace for your services and so find yourself competing on price. If you have a streamlined business that is geared to churn out work then the price model may work for you but you are always looking over your shoulder to see who is coming in behind you. In any marketplace only one person can be the cheapest so everyone else has to find out what makes them different. Analysing your competitors will give you valuable information and help you decide on your niche. There is no point going head to head with a large player on price as they have the ability and deep pockets to wage a war in which there will be only one winner.
By analysing your competitors and then linking this to what you deliver you have the ability to refine your offering to stand out from the competition. This is an exercise that can be done in-house or on Zoom and perhaps now is a good time as we use the time available in the best way possible.
Confidence is saying NO – part 1
It is very easy to get bullied particularly in the early days of your business. That large company who is offering you that job or contract that looks so inviting. They have negotiated hard, pared your margins to the bone and if all goes well you will make a nice profit. So here are some questions I would suggest that you ask yourself.
- Have you costed this out in detail to understand its impact on the business. Will it require you to provide overtime, take on additional staff, require additional funding
- What will be the impact on your existing clients, those paying fees with high margins – will their level of service drop and could you lose them?
- Will the new contract be so large that your exposure to one client puts you at risk?
Now I am not suggesting that you avoid large contracts but merely to understand the impact of getting involved and to make sure that it is worth it in the end.
Confidence is saying NO – part 2
Information puts the power in your hands and here is an exercise that I completed a long time ago that delivered great results. We all collect clients along the way that are difficult to deal with, want everything yesterday, haggle over the price and are the slowest to pay. In other words they take up an inordinate amount of time but always seem to have sufficient work to keep us interested. I took the time out to track six potentials that I had spotted in my business and tracked them in terms of fees and cost to service over a six month period. The information gave me the confidence to say to myself that I did not need them. In fact they were costing money and distracting my team from more valuable work.
I arranged a meeting with each of them and told that that our pricing structure had changed and we were increasing our prices by 50%. You can imagine the response I got but in the end four of them stayed and paid the new increase and two left. We were now getting the right fees for the work plus we now knew who needed who the most. This decision could not have been made without having the right information to back it up.
Can I suggest that if any of this resonates with you then perhaps now is the time to address the various issues that may be holding you back from achieving your potential. Perhaps a conversation maybe the starting point link
Don’t forget to sign up for regular weekly posts on topics of value and interest.