It seems that everyone is trying to pick it up a notch these days, and my clients are no different. So I thought I’d tell you about a strategy I’ve been working on with several clients that has resulted in higher fees, higher end clients and a shorter sales cycle: Perceived Value Pricing. Today, I’m going to talk a little bit about how this strategy can help you increase your fees.
For years many attorneys and consultants have priced their services by the hour, or given fixed fees based upon a certain hourly rate.
But as clients have become more sophisticated and value driven and the economic conditions have been more difficult, those strategies aren’t necessarily working anymore. Clients are looking at professional fees in a different light. They want to feel, before they commit, that the total fee they are paying will yield results of equal or better value. Hence, perceived value pricing.
Now you may think that this strategy might only benefit clients, but let me assure you, it’s a win win on both sides.
Constance does HR consulting for small accounting firms. When we spoke a couple of months ago, she a was in the midst of writing a proposal for a new client. She was contacted initially by a new prospect I’ll call James, who heads a 5 man firm that needed help developing a training program for new recruits. James mentioned that he hoped she would come in with a reasonable price and that she could “grow” with the company.
When Constance sat down and did the math, using the age old method of charging by the hour, she came up with a figure between $8 – 9,000. We both knew from prior experience that this was probably a bit tight, but because she kept hearing James’ voice in the background, she thought he would balk, and decided that $7,000 would be more palatable.
Knowing it was low, I asked her what James might think of this price. I knew that Constance was concerned that she wouldn’t win the project if she bid higher. I suggested that she try to think about it from a different perspective; using perceived value pricing instead. To do this, she had to get inside the mind of her client and out of the box she had created for herself.
I could see the light bulb go on as Constance realized that if the fee was too low, James would fear that he wouldn’t get a quality job. As she left my office, Constance agreed to think about the return on investment James would get from hiring her and what he might expect to have to pay to get that return.
Constance called me a few days later. She realized that for James to take her seriously, he would have to see that she was in his league. She had to charge an amount on par with his own fees. We agreed, but Constance was still nervous. I suggested that she go back and review the proposal itself. She made a few tweaks. In the final version, the value proposition was clear and compelling.
The final fee that she submitted and was accepted, was $12,000, $5000 more than she might have originally charged.
Perceived value pricing works. If you would like to learn to be more profitable in your business, check out my small business profitability program.
Susan Martin, Business Coaching
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