Pricing Your Products or Services 4

How do you know how long it will take to do a job?

You learn that from experience. If you don't have experience, you may be able to get the information one of these ways:

• Ask other people in the same line of work. Be sure to give enough detail about the job so people can give accurate advice. Don't just say you have a directory to typeset for a university, for instance; give details, such as "There are ten entries on a page, the name is in bold type, with all related information for the entry indented. The number of lines varies from three to five."
  
• Do one small part of the job and time yourself. Then estimate the total job time.
  
• Consider not taking the job or doing the job for free if you are just starting out in a business and have little experience in the industry. In other words, don't bill customers for the time it takes you to learn your trade.

What about retainer agreements? How do they work?

A retainer can be a lump sum used as a type of secured credit you draw against as you do work for the client, or it can be a regular monthly fee paid to you to guarantee the availability of your services when the client needs them. Generally the amount of money paid on retainer is based on your normal hourly rate.

How do contingency fees work?

When you work on a contingency arrangement, you get paid only if the outcome of your endeavors is successful. The actual payment is usually a percentage, such as the percentage of a settlement an attorney wins for his or her client, but it can be a flat fee, too.

How high can I set my fees without pricing myself right out of business?

To answer that question, you'll have to find out what the going rates are for the type of service you perform. In addition to the nature of the service, your experience, geographic location, competitors, and the clients you target all will have an effect on the maximum rate you can charge without losing worthwhile customers.

How do I find out what the going rates are?

Look for industry surveys and databases of prices, but don't stop there. Get out and talk to the people you want as customers. Find out what they want to buy, how much they pay for it now or are willing to pay, and where they are buying similar services now.

Tip: If you are bidding on a contract, get as much information from the purchasing agent or buyer as they can/will give you. If the contract is for private industry, if you ask the right questions, purchasing agents sometimes give you information that can help you formulate a more competitive bid. And always follow up after bids you didn't win to find out why. You can gain important competitive information about your competitor's pricing, strategy and guarantees that way.

What if no one is selling a product or service like mine?

If you're introducing a new product or service you are going to have to be innovative. Instead of trying to explain how a new product or service will benefit your prospects, show them. That's what Lewis Lehr, chairman of 3M, did when Post-it Notes were developed. To test the acceptability of the notes in real-life corporate settings, Lehr had his secretary send samples of the product to the secretaries of a few dozen CEOs at other Fortune 500 companies. As a result of that test, you now pay premium prices for tiny squares of notepaper.

How do I get up the nerve to ask for high fees?

Knowing what you ought to charge is one thing; actually asking for your fee and holding out for it is quite another. Here are a few tricks you can use to bolster your self-confidence and determination.

• Pretend you are selling the product or service for someone other than yourself. You are less likely to take it personally if a client rejects you because of high fees (or any other reason).
  
• Calculate how much it costs you and your family to live for a year. Add in an amount to allow for your business expenses. Now divide that figure by 1,920 (average number of working hours in a year). This will be the bare minimum you have to charge just to keep your head above water.
  
• Make a list of your personal goals (for example, the new house, expensive sports car, vacation condo, etc.). Imagine yourself enjoying them, then put a dollar amount next to each goal, and set a reasonable date for reaching the goals. Each time you are asked to quote a fee, think of your quote as moving you one step closer to your goals.
  
• Consider how much money the client saves by buying your services instead of hiring a staff member to do the work. By hiring you on an as-needed basis, the client avoids overstaffing, reduces the need for additional office equipment and space, and saves on expenses such as unemployment insurance, compensation, Social Security, health care plans, and other benefits.

Should I ever donate my services or charge very low fees to get my foot in the door?

If you are just starting a new business and have no experience in the field, donating your services or charging low fees can be beneficial. It can help you gain the experience you need and can be a good way to build a portfolio and references to attract higher paying clients.
Additionally, if you are new in a community or want to build goodwill for your business, it may be beneficial to donate products or services to key community organizations or projects. Before accepting charity work, however, consider carefully whether it is something you really want to do, whether you will benefit from the work, and whether you will actually have the time or financial capacity to see the project through to its conclusion. If you already have all the work you can do or have no particular interest in the charity, learn to say no. Otherwise you will find yourself spending a great deal of time doing work that doesn't benefit you in any way.

Should I charge friends and family?

That's always a touchy question. When you are just starting out, you may want to do work for friends and family for free to build up credentials, but once you have been in business long enough to have steady customers, you may not have time to do work for free.
If you can't afford the time, you should make clear to friends and family that you are in business and must make money to be profitable. If they don't understand, consider it their problem and not yours. Don't get involved in lengthy disputes. Just say you'd like to help them out but have commitments to paying customers that prevent you from doing so.

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