Price Like a Luxury Professional
When just starting a new business, or revamping the pricing model for an existing business, one of the more difficult decisions is whether to bill hourly or charge a flat fee.
It can be far less stressful if you keep in mind one overriding principle, you are a luxury professional and your pricing should reflect the value you bring to the table.
Be the Consumer
Think of what you pay to others to do work for you. Perhaps you have someone who does your taxes or advises you on investments. Maybe your attorney helped you set up your company or handle contracts. Or maybe you have an interior designer who you consult for large or small projects like selecting the paint for the new home you just purchased through your real estate broker. These are all tasks that are of great benefit to you even though you could do them yourself.
Nevertheless, you find it valuable to pay a specialized professional to do them for you. As a consumer, as well as a luxury professional yourself, you understand the value of having someone, skilled at what they do, perform the service to allow you to focus on doing what you do best. You value this luxury and feel those services are worth paying for.
When you prepare to pay other professional service providers, you typically don’t ask them how easy it was for them to do the work and then discount their fees accordingly. Of course not. Price is determined by the value provided to the consumer. The simplicity of delivery does not determine the reasonable fee, but the years of experience, education, and knowledge the luxury professional has obtained throughout their career does. To be able to be efficient in delivery and capitalize on that increased proficiency is the benefit of being persistent and diligent in one’s personal growth.
Pricing Your Services
When pricing your services, you can get tangled up in evaluating the time and difficulties you encounter in delivering your services. Don’t think of it solely this way. Instead, look at it from a client benefit perspective. Just as you would look at it if you were the client hiring the professional.
Your fees must reflect the professional quality of the services you deliver and the resulting value brought to the client. Not how hard it was for you to get the job done.
Determine Your Value
So how do you know what your services are worth? Especially if you are new to practice or modifying your business model.
Be Guided by Your Competition
For a baseline, look to your competition to see what they are charging. You can ask them and they may or may not tell you. If they don’t tell you, ask around. If you do find out, which you probably will, competitor rates are only a starting point and not the determining factor. They should generally tell you however what is acceptable in your area of practice.
What Services have you Consumed
Consider what services you’ve needed over the years. What would you be willing to pay for those services today? What were you required to pay? Did you feel you hit the jackpot or that you grossly overpaid? Your customers will be thinking the same thing and ultimately, that will affect your bottom line.
If you have or elect to bill hourly, give your rate the fairness test. Determine how many billable hours you must bill each month to make the wage you need after taxes. Do you feel you can get that much work? Or, does that rate, at those reasonable number of hours yield wealth or send you scrambling for a second job? Consider adjusting your figures up or down to put you where you need to be.
Consider the Flat Fee
Or, instead of being paid solely on time spent, consider the flat fee. Consumers are comfortable with a fixed fee arrangement since there is no guess work, they know what to expect, and can budget accordingly. E-commerce and m-commerce put a wealth of ready-made products at the fingertips of the consumer at very reasonable pricing. A flat fee for your services is a good consideration if your wage depends on products sales.
Even if you do not sell a product but solely rely on your services for income, don’t ignore the flat fee without seriously evaluating it. The concept of the flat fee is that over time you become more efficient at completing routine tasks and you increase your simplicity in delivery. If you were to charge on an hourly basis for those same tasks, eventually you begin losing money. Thereby decreasing your income as you get better and faster at what you do. Seems backward. Beginning with a fair fixed fee allows you to reward yourself for increased efficiency and more refined skills by allowing you to take on more clients in the same amount of time.
How to Structure the Flat Fee
Begin structuring flat fees by reviewing past work, if your business is established, or estimating the amount of time specific tasks should take you. Multiply the actual hours or estimated number of hours by the hourly rate you are thinking of charging. The result should give you an idea of what is reasonable from your perspective. Now reverse your think and look at that number from the client’s perspective. Come up with something different?
Depending on the complexity of the project, sometimes you end up with a stellar wage after the job is complete, and other times you take a bath. But throughout the year it should even out and you will settle into something comfortable. Over time, if you find you get less work than anticipated or your business goals change, you can adjust up or down accordingly. You will have obtained some solid data as well as a much better understanding of what you should be charging and be far better prepared to modify your fee going forward.
Give your best evaluation of a fair flat fee a try. Whether it works on the first try or doesn’t, consider a yearly review to verify your expenses are being covered and your required income levels still meet with your approval. Make your adjustments as needed and congratulate yourself on effectively charging as a luxury professional.