If you’re in a service business, estimating what a project costs is like navigating a minefield. You’ve got to step very carefully to add value to what you do without accidentally undercutting your services.
To get some common sense tips on how to price your services fairly but without giving away the farm, I interviewed a San Francisco-based marketing guru, Amy Harcourt of Definitive Marketing.
Her answers below comprise the first of this two-part series on how not to price yourself (on the low side) out of business:
ISBB: What did the Harvard Business Review say about the practice of offering discounts? You have an article about this on your website.
Harcourt: In our present economy, driven by price hypersensitivity, marketers are discounting like never before. The Harvard Business Review coined the term “Post-Recession Consumer” to describe an all-new attitude of thriftiness and a pervasive expectation of discounting. But just because consumers expect a discount, that doesn’t mean you have to provide one.
You’re a marketing veteran with 25 years in the trenches. In your experience, what are the scenarios where you should not discount your services?
These are the six big ones:
1) To close a deal with a new customer – If a prospective customer has legitimate financial constraints and asks for a discount, say, “Yes, I’d like to work with you on price.” Instead of a giving a discount, offer to look at their needs and then at appropriate options. Can you remove specific features or benefits, reduce the scope of the work, change the terms, increase the lead time, etc. in order to lower the fee?
2) To secure return and renewal business – These are the customers who know your work best. If they have real financial limitations and retaining their business is important to you, use the approach outlined above instead of discounting your price.
3) To undercut your competition – Once you discount, you’ve begun a battle of diminishing returns. This is how you turn your offering into a commodity. It’s no longer about value, but about price. And anybody can beat you on price.
4) To market to high-end customers – The high-end customer may signal that they’re shopping for price, but they really aren’t. If you discount, you cheapen your brand and may turn off the very customers you want to attract.
5) To sell services that impact health, safety, and/or security – When customers buy things that affect their health and well being, are they really choosing the cheapest solution? Price may factor into the decision, but it won’t lead the way. So why would you lead with a discount?
6) To secure a long-term contract – I’ve seen how easily contracts are broken these days. It’s wiser to maintain your margin now then trade it off for business you may lose before the end of the contract.
To read more about Amy’s marketing services, visit www.DefinitiveMarketing.com.