10 Steps for Pricing Your Services with Confidence (and Not Leaving Money on the Table)

By Mark Burton

Editor's Note: This article is one of twelve belonging to the free, 39-page special report, The One Piece of Advice You Need to Get the Fees You Deserve. Click here to download your copy.

Great news! On Thursday, that client that you have been pursuing for the last two years finally asked you to submit a proposal. They promise you a quick decision and on Tuesday, you get the call that you have been waiting for. The client loves the proposal and wants to go ahead with the work.

There's only one small detail that needs to be worked out. The price. It seems that your fees are out of line with what the client had in mind for this project. And since it is their first time working with you, there could be follow-on work and a concession on your part would show your willingness to be a good business partner.

What to do? The typical response is to discount, discount, discount—resulting in less revenue and lower profits. It's easy to rationalize the discount, but it's the wrong thing to do. After all your team gets results and clients love them. There must be some way to get the business without having to make concessions on your fees.

There is. My one piece of advice is to never negotiate price alone, rather, negotiate the value of what you offer and change your fees accordingly. If the client wants a lower price, force a trade-off by offering a lower-value alternative. The key is your ability to link your fees with value delivered.

Your objective is to feel 100% confident in your pricing—no matter what prospects are saying or how fierce the competition. Try these ten rules to develop your pricing confidence:

Replace the discounting habit with a little arrogance. Price discounting is an entrenched attitude in most organizations. To dislodge any deep-rooted attitude, replace it with another. Arrogance—feeling good about your products and services—will help you kick the discounting habit. You work hard and provide great value for your clients. You deserve to get paid for it!

Understand the value you offer to your clients. You can't have confidence in your pricing until you have confidence in the financial value your offerings create for clients. Make sure you understand your prospective client's profit model and how you can positively impact it. Most of your prospects are eager to tell you. Ask the right questions and be willing to listen.

Apply one of three simple pricing strategies: Know when to price high, when to price low, and when to price close to the competition. To create confidence in your prices, strategies must be simple and agreed to by everyone in the firm. Pick a strategy and stick to it. "Case-by-case" is a recipe for disaster, not a strategy to create profits.

Play better poker with customers. Most clients say value is what they most want, but many are bluffing when they ask for a discount. Some truly are motivated by price alone. But most want—and are willing to pay for—value.

The trickiest types are the poker players, who love to play the pricing game and have learned that, if they focus on price, they can get firms to leave money on the table, and continue to provide high-value services. Knowing the strength of your own hand—the value you offer—gives you confidence to resist the temptation to close at any price.

Price to increase profits. It's a myth that if you discount price to increase sales, you will see increased profits. Profits result when an organization does many things right, including simplifying costing approaches so they permit more effective use of your company's resources. Better costing supports better pricing decisions. This is just as true for service businesses as it is for manufacturers. Efficiency, controlling costs, and better profit metrics are all required for pricing success.

Add new services that give you negotiating flexibility and growth. An effective strategy is to develop a dual offering that covers both the high- and low-end client needs. This requires some level of service standardization and a willingness to only offer your highest service levels to those clients that pay for it. If prospects want a lower price present a trade-off: subtract features, restrict scope, use junior resources, or transfer more responsibility onto them.

Force your competitor to react to your pricing. In most service businesses, almost all opportunities look good on the margin. The problem is that this thinking leads to a competitive pricing death spiral. Map your markets. Define where you do, and do not, have a value advantage over your competitors. Know where and how to compete on price—and where and how not to.

Build your selling backbone. To have confidence in negotiation, salespeople and managers need confidence in pricing. This comes from knowing your value. It also comes from knowing your client. Backbone comes from being honest with yourself about the tricks your clients use to get you to drop price and dealing with them head-on.

Take simple steps to move from cost-plus to value-based pricing. There is nothing wrong with cost-plus pricing as long as it does a good job of leveraging the financial value you create for clients.

Value-based pricing is an ideal. It requires sophisticated internal skills and systems. The trick to value-based pricing is to evolve pricing as the discipline and skills of your people improve. Start gradually. Once you learn those skills, moving forward to real value-based pricing is a snap.

Price with confidence, remembering who you are. Shift the negotiation to how you provide concrete results for your clients. They buy results, not rhetoric. Show prospects the value that you provide your clients and define with them how to measure your impact on their business. Moving beyond the rhetoric of value will enable you to prove your results.

By following these ten simple rules, you will be able to hold steady or even raise prices while your clients experience increased value for every dollar they spend. The result? Increased revenues and profits.

Editor's Note: This article is one of twelve belonging to the free, 39-page special report, The One Piece of Advice You Need to Get the Fees You Deserve. Click here to download your copy.

Mark Burton is co-founder and vice president at Holden Advisors where he helps business-to-business clients improve revenues and profits by connecting value to offering and pricing strategies. He is also co-author of the book, Pricing with Confidence: 10 Ways to Stop Leaving Money on the Table (Wiley 2008.) For his recent thoughts and commentary on current business events, see Burton's blog: http://markrburton.wordpress.com.

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