How should you price your services? This is an area that has seen much debate for some time now around the right level of fees and whether hourly rates really do work in this sector. There is a balance to be struck. Price your services too high and you won’t get the business; price them too low and you’ll wish you hadn’t. Informed wisdom suggests that you can’t charge more than the market will bear. But surely that depends on which market or niche you are working in and what you are doing for clients.
Furthermore, we are providing services and the range of prices that people will willingly pay for the same service is many times greater than the range they will pay for the same product. How so?
Firstly, price information is scarce. If you want to buy the latest plasma TV you only need to trot along to your nearest Curry’s or Comet and you’ll find all the latest models from Sony, Samsung, Panasonic and the like displayed side by side, with the price clearly shown. It’s easy to compare.
Secondly, there’s no such thing as the same service. Each firm (or individual adviser) will deliver advice in their unique way, even if they use identical risk profiling, cash flow forecasting and financial planning software. Once you’ve decided that the new Samsung, all singing all dancing 3D TV is what you need (Okay, want) the only thing left to shop around for is the price. It is what it is, the same product.
Finally, the value of a service to the customer is always substantially more than the price. The £40 or so you pay your dentist for a filling on the NHS is worth multiple times that in terms of freedom from pain and sensitivity and the ability to eat normally. That value equation has to be there: the value of the service has to be many more times what we pay for it, otherwise there’s no “sale”
The other key element of your pricing strategy is KYC. No, not “know your customer” but “know your costs”.
Last year I attended a breakout session at a conference where the question was asked, “How many of you have worked out what it costs to deliver your service?” By my reckoning there were 70 advisers in the room and not one hand went up. Staggering. The pragmatic and sensible way to determine your pricing is to price to cover your costs (including your own remuneration) and make your margin. It’s your margin that drives your profitability, sees you through the tough times and allows you to invest in the business.
Profit is not a dirty word. In reality, only when you are profitable can you truly act in the long term best interests of your clients.