I know cash is King, but I’m starting to believe pricing is Queen. And we all know the Queen rules the King… 🙂
Although I started my company over 18 months ago I am just beginning to realize how important pricing is. I know….sounds ridiculous, right? But pricing is not easy, especially when you sit across the table from your potential client and you must communicate your value and the pricing for those services MUST translate – in other words, there must be an alignment between perceived value and cost. It’s easy when your price is low but that isn’t a sustainable model – we aren’t in business to breakeven, or at least I’m not and you shouldn’t be either!
As I have hired a couple of amazing team members over the past year it has become very apparent to me that we must utilize our team in the most efficient and profitable way possible. Not to breakeven. But to make money. Most of you are probably thinking, duh, we all know that. But as you start to add overhead it becomes extremely important that you bring on projects priced to consider these additional costs.
I left my cushy corporate job 2 years ago in part because I realized time was the most valuable thing I own and I figured I could get a better return on that time if I managed it, not someone else. And now I realize that my team’s time is what we are collectively tasked to deploy and we as a team must ensure our time is spent profitably. Seems simple. And if it is simple for you to execute in your business – then I will advise to use your time better and stop reading right now.
Ok, for those that are left – here are 3 things I have found are important to successfully price your services – regardless of industry. Although I happen to have an accounting & technology company I feel the below points work across service related industries but are not mutually exclusive, in my opinion they are all dependent upon one another to successfully achieve the right team, and therefore pricing model:
- Hire the best. Oh, a simple sounding task, right? It’s not.
In order to hire the best I believe it is extremely important for you to anticipate several months out that you need to hire someone. This is a hard thing to do and there is no exact formula to tell you when, but you must anticipate the needs of your business and then act on it!
I know, it’s scary, but if you have a clear plan and path forward it is critical that you get out in front of the growth of the business, otherwise you will not only delay the growth of the company, but you will find yourself unable to serve current clients, much less find new ones.
Make sure you thoroughly assess the level of talent you need to scale to the next level. If you under-hire you will be adding overhead without the right value you need in your business.
Early timing is important for a couple of reasons:
First, it allows you plenty of time and discretion to hire the best. If you are trying to hire someone with a 2-week lead-time the odds are you are not going to find the best. The best are working at another company and not looking for a job, so it takes time to find them, persuade them, and then on-board.
Second, thinking ahead also gives you time to change your mind. You might change your perspective on the level of person required, the pay, the responsibilities, etc. Giving yourself time, when possible, also helps in your ability to negotiate terms. When you become desperate, you lose a lot of negotiating power. So the first order of business when trying to achieve the right pricing model is to hire the best.
- When you hire the best you begin to develop a team that you have confidence in. And I do not just mean confidence in their ability to perform tasks at a high level or manage other team members effectively. I mean having confidence in them to represent your company on your behalf without you in the room.
This is huge!
When you can trust your team member to communicate with potential or current clients without you – and you aren’t nervous about what might come out of their mouth, wait, let me back up – when you know they will say the right thing on behalf of the company – it not only allows you to sleep at night, but it allows you to rely on your team to build relationships in your absence.
I finally realized how important this is! When you have a team that not only kicks ass in their day-to-day work, but can also develop and maintain relationships – it is game changing.
We all know it is much more cost effective to retain clients than to find and bring on new ones – which is why hiring the best and allowing them to develop relationships is so key. However, not only does it help with current client retention – it frees up your time to bring on new business without sacrificing the current client base. So hiring the best is the first step, then providing them a platform to succeed and communicate on behalf of the company is a naturally occurring second step.
- Now that you have the right team in place and are able to get out there and let the world know you’re the best – you still have to be able to do one more thing. Say no. That’s right – and as the saying goes: no deal is better than a bad deal.
So you have finally found the best talent, they are exceeding your expectations and everything is going great. You now have time to get out there and sign up new business and you feel confident in your team to handle this new business. Well, not so fast, quite frankly as a business owner you now have more pressure to load up your talent with work so you cover their cost, right?
Wrong! (yes to the pressure, no to the cover their cost part)
There will be many businesses that would love for you to serve them with the talent you have to offer – but they won’t want to pay for the value you are providing. Oh, they may be willing to pay “market” price, but you aren’t serving up “market” talent – you have the best. So knowing that you are paying more for the best talent, you must remember and communicate the value you and your team are bringing. If the potential client doesn’t see it – say no. Of course politely, but say no.
You cannot use your talent’s time (remember their time is expensive) just to break even, or to achieve a profit margin that doesn’t cover your overhead. One of the hardest things that I am learning is to say no. And it doesn’t necessarily have to be a “no” – but by not lowering your price when they say “it’s a little more than I wanted to spend”. When you hear those words – double down. I don’t necessarily mean aggressively, but have confidence in you and your team and communicate how you will exceed their expectations and add value to their business.
The first time you don’t win a proposal on pricing because you stood up for your team and didn’t de-value your services – you will know you did the right thing and will be better for it. Don’t get me wrong, there is always a time for negotiation on the right deal and that just depends on how you decide to put your first price out there, but the point is to not go below your profitable price (or talk yourself into accepting lower profit!).
What I describe in these three points takes time and is a process. It evolves and changes constantly – in my opinion, no one ever gets this perfect so don’t beat yourself up for making a bad deal – my portfolio has many. Learn from it and make better decisions next time.
But over time make a concerted effort to hire the best, which will not only bring confidence within your organization, but will allow you to hire fewer people (this will be a topic of a future blog). Then don’t be afraid to say no to a deal – burdening your company with mediocre deals is not sustainable long term. Lastly, please always remember there are thriving businesses out there looking for the best talent and willing to pay for it! Create that team and price it right!
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