How to Determine What You Should Charge Customers

By Dorie Clark, entrepreneur.com

How much should I ask for? Especially in the early days of your business, that’s the most stressful question. Demand too much and you might drive potential customers away. Ask too little and you’ll dig yourself into a hole with razor-thin margins. Here are five questions to ask to get a better sense of how much you should be charging.

1. What’s the going rate?

You may end up wanting to charge significantly more, or less, than others in your field. But in order to make that decision, you should at least be aware of what’s going on out there. Start with online research to see if packages and fees are listed on competitors’ websites. You can also reach out to friends and colleagues who may have employed similar vendors in the past; they’ll likely be willing to share their experiences and how much they paid. And sometimes the best information comes from the horse’s mouth: many people in your field will be warm and collaborative if you ask for their help. Often, they’ll freely reveal what they charge and how they structure their pricing.

2. Who’s your audience?

Let’s face it: Unless you’re catering to celebrities and CEOs (which is great work if you can get it), it’s unlikely you can get many people to pay you $1,000 per hour for health coaching. Think through how much your target audience can afford to pay and how critical they’re likely to view your service as being. (They’re more likely to pay top dollar for a divorce attorney than they are for a knitting instructor.)

3. What value are you providing?

It’s not easy at first but try to quantify the value that your work is providing to your customer. If you’re helping them improve their sales processes and that nets them an extra million dollars per year in revenue, a $100,000 contract seems downright modest. You can also measure cost savings (perhaps you’re helping them retain high-level employees who would cost them hundreds of thousands of dollars to replace), and the number of people impacted (which is why you can charge far more for an hour-long speech than you can for an hour of coaching). Alan Weiss provides additional information about how to identify the real value of your work in his book Value-Based Fees.

4. How do you compare to others in your field?

You shouldn’t let your credentials control your pricing, but it’s worth keeping in mind. If you’re just starting out and have far less experience than others in your field, you may want to charge at the lower end of the spectrum, so you have a better chance of winning clients and gaining the real-world practice you need. On the other hand, if your credentials are impeccable -- this could include premier university degrees, experience working for blue-chip companies, a reputation as a thought leader in your field or a powerful network and connections -- you may want to charge significantly higher rates to signal your premium status to the marketplace.

5. How can you create predictable revenue streams?

Here, the question centers around “how” to charge rather than “how much.” In general, it’s best to avoid using hourly rates (another of Weiss’ mantras).>>>