Why Changing Your Pricing Strategy is the Quickest Way to Scale
A change to your pricing strategy is, perhaps, the quickest way to scale. Why? It does not require an investment in people or money to implement. The benefits of revisiting your firm’s pricing are immediate: charge more today than you did yesterday. Are you looking to scale your boutique? Change your pricing strategy first.
Pricing Mistakes Boutique Owners Make When Scaling a Business
One of the biggest challenges for professional services firm owners when scaling a business is choosing the right pricing strategy. Most boutiques price their services incorrectly from the beginning. Here are the main reasons why:
- Boutiques do not know what their services are worth to their clients.
- Boutiques do not know what their clients are willing to pay.
- Boutiques cannot logically explain to clients why they charge what they charge.
- Boutiques cannot quantify the amount of value a client receives from an engagement.
- The pricing approach is inward out – that is, based on internal costs.
- Boutiques focus too heavily on what their competitors charge for similar services.
- Sales teams inside boutiques cannot overcome pricing objectives effectively.
The good news – this problem is simply solved. It takes some sound judgment, but pricing best practices are readily available, and they can make all the difference for owners in developing a scalable plan for their business. Here are a few best practices professional services firm owners should use to get started.
Scaling a Business: How to Create a Pricing Strategy That Aligns With Your Firm
Many entrepreneurs have asked me how they should choose the right pricing strategy. Here’s what I tell them: “Develop a pricing strategy that matches your business strategy.” For example, if you sell to small businesses, the high-volume, low-price model makes sense. The low-volume, high-cost approach is best if you sell luxury items to the elite. If you sell differentiated products to midtier customers, premium pricing makes sense. For instance, a Lexus costs more than a Camry but less than a Rolls Royce.
The key takeaway: connect your pricing strategy to your business strategy. Here are two pricing models to consider when scaling a business.
Perception is a reality in pricing. Therefore, price positioning is very important. Your firm’s pricing sends a signal to the client. The price influences how a client perceives you. Price too low, and your work will be considered low quality. Price too high, and you will be perceived as difficult to engage. If you price the same as your competitors, you will be perceived as a commodity.
Clients value specific attributes of your service offering. Understand what those are and influence the perception of your performance in these areas. An example from my past might help you appreciate the power of perception.
The structure of the management consulting industry has three tiers. The first tier is the large market leaders. The second tier is the midsize boutiques. The third tier is the small start-ups or one-man shops. My firm, SBI, was a tier-two management consulting firm. A midsize boutique. We priced our services below the first tier but above the second tier. What perception did this send to clients?
It said that we were the best of the boutiques. Clients who wanted to hire a boutique but were afraid to hire us. These clients felt that moving away from a brand-name firm was risky. Yet they were willing to take the chance because hiring us reduced the risk. We were the best of the boutiques and close to the tier-one providers. The perception the price set was that my firm was a premium boutique. This was a powerful differentiator.
An alternative pricing strategy to use when scaling a business is price versioning. Use price versioning to allow clients to choose their own price. This will result in them deciding on a proposal faster. Giving clients a choice allows the boutique to link price and value. Price is what you pay. Value is what you get. And the two are never the same.
For example, personal trainers sell packages to their clients. The bronze package is $/visit. The silver package is a $/fitness program. The gold package is $/wellness program. The choice allows the client to consider what they value: visits, fitness programs, or a wellness program.
Listen to this episode of the Collective 54 podcast, The Revenue: A Practical Guide to Monetize Professional Services, for more tips on identifying revenue streams and monetizing professional services.
Pricing Questions to Ask When Scaling a Business
Are you wondering whether a new pricing strategy would help you scale? First, you need to understand whether your current pricing is an issue for your clients and business. Ask yourself these questions. If you answer no to most of these questions, you need to revisit your pricing strategy as part of your scalable plan.
- Do you know what your services or products are worth to your clients?
- Can you quantify the value of your work?
- Do you know how much clients are willing to pay for your offerings?
- Can you explain the logic behind your pricing model to clients?
- Does your price demonstrate to the client the link between price and value?
- Do you charge the most for the service features your clients want the most?
- Do you charge the least for the services features your clients don’t care much about?
- Do you allow your clients to choose their price by offering varying price packages?
- Is your sales team skilled at overcoming price objections?
- Have you built an annual price increase into your pricing system?
Looking to Scale Quickly? Change Your Pricing Strategy
Know your worth. Don’t undervalue yourself. What you do is exceptional. Price accordingly. The clients you want know this and will pay you with a smile. You do not want the clients who are unwilling to pay you fairly.
For more insights on how to scale your consulting business, join our mastermind community. Collective 54 is the first mastermind group for professional services firm owners. Contact us today to learn more about the benefits our group offers firms like yours.