How To Come Up with Your Price

How do you calculate a price? It’s a big question I get asked all the time.

There are essentially only two ways that you can price. Cost-plus pricing, and value pricing.

Cost-plus is the old fashioned way of pricing in the profession. It’s based on time. 

Value pricing is the superior way of pricing. We price based on the value the customer places on our service. But how do we know what that is?

The problem is we don’t - the customer will have a number in their mind that they are willing to pay based on their perception of value. They won’t tell us what it is.

Nevertheless, we have to figure out some way of coming up with a price. I’ll give you three ideas…

You can watch the video here.

#1 - Get a fixed price upfront

You need to make sure that you cover your costs. You need to properly identify the scope of the work. That comes from the experience of doing the job and knowing the right questions to ask the client and building that into your calculations.

It may be that you use a tool like Effective Pricing to do exactly that - it takes all of the hard work and all of the guesswork out of the process. Learn more about Effective Pricing here.

#2 - Give the client choices

Having worked out what the scope is, you then want to give the client some different choices.

You want to give them menu pricing. Create different packages and let the client choose the one that’s right for them.

Make sure your more expensive packages are based on the value - nothing to do with the time it takes. Price the top package much higher. If the customer sees value in your most expensive premium package, they will pay. If not, they can choose a different package.

By letting the customer choose from different options, they will pick the one where the price represents value to them.

#3 - Go the extra mile 

You can then go into another level by giving options outside of those packages.

For example, you may ask the client: “When we do this work, who would you like to lead the project at our end? Who do you want to work with?”

They will probably choose you. That’s because they value working with you. If they value working with you, you can build into your calculations a higher price. And you should charge a higher price knowing that if the client agrees to your price they are obviously happy with it and they see value.

If they think the price is too high, then you can go back and change the package with them. You can say:

“The reason it’s that price is because you want to work with me. If you would prefer a lower price, then we can change the package. One of the things you could do is you could have my assistant as the lead on this project.”

Then the client gets to choose based on their perception of the value of the different options. Do they pay more to work with you? Do they pay less to work with somebody else?

Ultimately, only the client can determine what the right price is, which is always the problem with value pricing.

We overcome that by giving choices. You want to aim to price high and come up with a high price to start with, knowing that we can work with the client and change the price bit by bit until we get to one that they are happy with.

If you found this valuable and would like to learn more about value pricing, I run a free live online training session every month with a topic chosen by you. Attend live and you can ask me any questions you have. Click here to register and I will send you an invitation to the next session.

Wishing you every success on your pricing journey

Mark Wickersham

Chartered Accountant, Public Speaker and Author of Amazon No.1 Best Seller “Effective Pricing for Accountants”