What's the hardest thing for you about setting fees?

Hi Molly Great question and I have also written articles on this topic. Early on when this was a bigger issue for me it was because I didn't have a complete business plan, vision and whole picture. I also didn't have a marketing plan which is about knowing one's perfect customer and what problem they have and what valuable products I have to help them. Now that I know that, it is much easier to have faith in what I am offering and know that it is something people want, need and will pay for.

Hello Molly, I just started a non profit consulting company with 7 other business owners to raise money for charities. last meeting we were discussing what fees to charge and how much. There were pretty much 7 different answers. We all have been successful in building our line of business which we all had charged fees, but all of us went about getting the figures very differently. For me it was easy, if I was consulting on the employee benefits for a company I would just figure what the commission levels would be and then round out a figure. If I was in helping a company build up sales I would charge a percentage of the growth. Not sure what the best formula is here we had not decided as of yet in the non-profit group Robert

This is a great question. I'd be interested in taking a look at your ebook when it's ready to go. I have the most difficulty charging my favorite clients, the ones I love to do work for. Of course, this also ends of being my best work.

My rates have gone up as my knowledge, skill and portfolio have increased. Do I keep the same pricing for clients who hired me from day one? Do I drop these clients if they're not willing to pay my new rates?

Pricing is a major challenge for all us self-employed indies. Price too high and you don't get the work, price too low and you suffer for it. Estimate low to get the work and then up the price is also not a good policy because you end up with unhappy, disloyal customers who will never refer you to anyone else (referrals are one of your best sources of new business).

There are a number of conflicting philosophies about pricing. All I can do is tell you what works for me. As far as rates go - research what others in your field are charging and then adjust up or down based on your level of expertise, training and experience.

Most pricing issues aren't about the price structure at all. Most problems arise because of customers not clearly seeing or understanding all the work involved. Here are my personal guidelines: - Write down the specifications of the work in detail in a "Work Order" so you and the customer can agree on what's to be done. It is also a good way to spot and deal with misunderstandings early on. - Provide clients with a written "Budget Estimate" (not a quote) which clearly states that it is based on the written specs and that invoices are based on actual hours and materials expended. The budget estimate clearly details each step or function, the estimated hours required and the applicable hourly rate or fee. It is important that you break down the details because they need to see and understand exactly what you are going to do to help them. I have never had much luck in just giving a "total" without detail - chances are you're going have a customer turn purple, clutch his/her chest and keel over backwards. - Deal with changes immediately. If a customer deviates from the work order, contact them immediately and let them know how it affects what you have to do and consequently how it affects the budget estimate. - Invoice in as great a detail as your estimate. Make sure they know exactly what they're paying for.

Hope you find this helpful and would love to hear about your progress with your ebook.

When making jewelry, I have several pricing formulas that I use to input labor and materials and let magic it spits out a retail and wholesale cost. The hardest thing for me is sticking to the formulas and not letting friends and family influence what I know to be an accurate price for my work.

I've had quite a few biz owners tell me that the hardest thing about setting fees is collecting them.

Check out my self-help How to Get Paid article:

http://biznik.com/articles/how-to-get-paid-part-1-six-steps-and-no-legal-fees

Mark | http://www.walterslawfirm.com/

I think sometimes I picture myself as my target market and ask how much could I / would I pay for this? I know it would be better for me to find tools that tell me what my actual target market spends on products or services like mine.

People have to stop focusing on their inputs (hours, direct costs, etc...) and start focusing on their outputs (increased sales or revenue, increased productivities, etc...). Define the value of your product or service to the client. How? Ask them.

If I give a client an idea that makes him $1million, I'm going to charge him 10% as my fee not an hourly wage of $100. People are paying for the value you can deliver not your time or supply costs.

This is the one area most providers come across as amateurish because they cannot communicate the value of their product or service.

Great post Jeffrey... It's a good reminder that we all should remember. I have always tried to sell my products and services using your method.

I like to refer to it as the value proposition that needs to be understood before I ever ask for an agreement to engage. ...Howard

Amen to that Howard.

The only tool you need is the one God gave you between your ears. If you don't have it there, where else will you?

Hey Jeffrey and Howard,

That's an intriguing idea. What I like about Beth's technique is that, because it is input based, it's fair. Whether your a king or a beggar, her jewelry will cost the same. The jewelry might win the king a queen and the beggar a beating (from a bigger beggar), but that the price is based upon what it costs Beth.

Whereas with you guys, I'm curious to how the value is determined? I understand that you're asking your clients, "What is this worth to you?" The value has got to differ client to client however, so I want to know how that initial bid comes out. Do you ask, "How much money will this save/make you?" and then take %10 of that figure? Do you take the average value from clients with similar situations?

Thanks for a really interesting discussion, John

The discussion is getting better and better.

Jeffrey makes a very important point. What we sell is value and when we make presentations and proposals that should always be the rightful focus. However, the discussion is about fee structure and pricing.

I have helped companies make millions and I would love to charge 10% of the actual value I provide. Unfortunately I operate in an industry saturated with talented, hungry pros who use the hours and materials model of pricing. It is not difficult for me to differentiate myself to stand out from the herd or to charge above industry averages, but I simply have had terrible luck winning jobs using a flat fee based solely on a value rationale. Whenever I price too far outside of the expected competitive range, I starve.

I know you are a respected consultant, Jeffrey. Perhaps your industry is more open to flat fees. I would love to learn how to apply your pricing model to graphic design and website design.

It has nothing to do with specific industries or openness to flat fees.

It has everything to do with being able to communicate the value you offer to the client. When you get pushback on not utilizing an hourly fee, you have to understand your value proposition and be able to communicate that convincingly to the client. We do.Very seldom do I have a potential client press me to give him an hourly quote. I also do not know fear, so I have no qualms about refusing work since we believe if they aren't smart enough to understand the concept, they pretty much aren't going to be great clients either. I don't need clients like that. If they don't understand "value" for themselves and their businesses, they obviously don't offer it to their clients so any work we do, won't work for them anyway.

We also have a page on our site devoted to addressing why we don't use an hourly fee structure to filter out those who might demand one.

We also offer graphic and website design and have not had a single client demand an hourly fee. In fact we post all of our fees on our website for anyone to look at along with the contents of what we do - obviously a unique demand or situation calls for creating a proposal. We offer bundled services to match the needs of each client - obviously the more services you want the better the value for the client. They see this and respond accordingly.

We offer examples of our work, testimonials from clients, intense "get to know your business" consultations and guarantee our work with great support and follow-up. We also build great relationships with our clients and retain over 87% of them for years and receive great referrals from them in the interim.

The bottom line is that you have to focus on the outputs. What solution are you providing for the client? How is it valuable? What is the value of it to the client? (Not to you.)

If you listen enough to each prospective client, long enough and ask the right questions, they will tell you how to gain their trust and thus their business.

Sorry John, but you equate value with price. Value has nothing to do with price and neither does fairness. They're too arbitrary.

But I understand your viewpoint because it echoes others I hear from people who work in commoditized businesses - jewelry among them. Businesses who trade in commodities don't understand the need to differentiate themselves and create a value difference in the minds of their target market. You can't sell to the King, the poor and everyone in between. You have to focus on a segment of the market you find success in serving by designing your offerings specifically to fill a need/want in that market.

If your product costs the same to both the king and the beggar, why should I buy it in the first place? Will a king want to wear the same jewelry as a beggar? No. So why treat them the same? They aren't. I have never heard of a successful company who had as their slogan - "Average products for average people!"

The last thing is this, if you think you're in the jewelry business, or in Ed's case, the graphic and website design business, you're wrong.

You need to figure out what business you are in and that will tell you what your value is to your customer and clients.

Jeffrey, That's a great shift in perspective and I understand that the key point is being able to communicate that value to the client. If you fail to communicate that value, then you fail to present the rationale for your pricing.

It sounds to me like you target a segment of the market(upper end), determine what benefits the ideal customer of that segment would gain by using a service, charge a flat fee for it, and then schmooze the pants off of them at every possible opportunity(I.e. communicate the value.) :-)

I like it and appreciate the insight. My business is weak in this area and it was something that I hadn't realized until I stumbled on this discussion.

I have a need to strategize our booth and attendee fees right now (it's all virtual FYI) and one of the ways we are exploring the answer is with the "end" in mind.

My intention is to build an authentic online trading space for event planners who want to streamline their green event souring (more here).

This goes beyond just creating a place to promote one's solution, but there is value-add because we have developed a lead-generation tool in the back-end for our exhibitors.

I simply put up an "introductory offer" of $195 for the year (until the end of Jan), but if a vendor lands just ONE deal, this is paid for in a second.

I still don't know if I will decide if attendees will pay, as a typical trade show pass requires. Again, this requires a pricing strategy.

I know there is a price out there. It's found in the value, but also in the industry standard, and definitely in the experience (we plan to upgrade to a 3D virtual trade show)...as well as so many other factors.

I appreciate this discussion and any additional factors to consider.

@John We target a market that has pent up need - independent food service owners and operators - who have a need for professional Coaching and consulting services. We create our services a la carte but package them for the "value add" and then scale them so that even Joe Restaurateur can afford the help or the operator who is building a small to medium sized chain. Value can be built for any level of client who has a need.

As for "schmoozing" - anyone who uses that word in my company gets fired. We build, real, sustainable, long term, valuable relationships with our clients. We don't believe in churn, or losing a client. Most have my personal cell phone number on speed dial - and I theirs.

@Jessie My first thought is "who is the end user?" If it's the exhibitors then they become the income channel and the attendees should be free to draw traffic and thus more exhibitors. That's pretty basic but given the uniqueness of your business, it's also a good place to start.

Great suggestion, Jeffrey.

Thank you.

This thread is all about perceptions. Know your audience and they will respond. How do you know them? Lead by asking questions. You will find that answers vary, not only from industry to industry, but from personality to personality.

There will be no ONE right answer. Just the right answer for you.

Still, start with the end in mind. Even declare your ideal financial goal! All answers will generate from there.