"Should I Price My Service Lower When I'm Starting Out?"
November 12, 2019
This question comes up frequently when I speak to student entrepreneurs or owners of new businesses. I recently got this question from a business school student who said he wanted to start a consulting business.
It’s an understandable question, but it comes from a faulty assumption. The premise is that lower prices attract customers, and that’s an understandable misconception that all services professionals have labored under when starting out. I know I did.
To begin with, part of the problem for services professionals starting out is both fear and confidence. Let’s call this out: we are afraid and insecure in thinking a buyer will look at us and question our inexperience in this business.
The answer to the problem is discussing and understanding the client’s problem in-depth. What is the scope of the issues this problem is causing? What will the client be able to do (greater sales, lower expenses, less aggravation, etc.) because the problem gets solved? What’s the cost of doing nothing?
That’s a value conversation. A value conversation is a dialogue with a customer which helps ferret out what the solution to their problem is worth to them.
When you have value conversations with clients, you’re shifting the gauge. The comparison is less about the price relative to, in this case, your supposed lack of experience. Instead, the comparison becomes more about price relative to the value of the solution.
Once you’ve had a thorough value conversation, you may find that you’re not a great fit for this client, that what they really need is something you can’t provide. If so, you’ve done both them and you a favor.
If you think you can solve the client’s problem, though, craft options for working together. Offer a “good, better, best” set of options. The “good” option should be your very basic, “compact car” offering, priced at more than what your gut tells you it should be. The “best” option should be your “luxury” solution to the problem—one you know you can deliver—with a price you think is crazy high.
If you offer options after having had a deep dive value conversation, the discussion with the client becomes more about the ways and terms to work with you.
There’s a lot a detail underneath this answer, but that’s the way I answered this student’s question, in the limited time I had.
Have a value conversation, offer options.
©Ray Business Advisors, LLC and John Ray
About me: I’m enthusiastic about how changes in pricing strategy can significantly change profitability for a business and enhance life choices for business owners. I live this passion through Ray Business Advisors, my outside CFO and business advisory practice, in which my pricing is exclusively value-based, not hourly. I work with business owners on how they can change their pricing not just to increase their profits, but better serve the wants of their customers. Click here to learn more or call me at 404-287-2627.