How do you set your prices?

Deciding how to set prices is something many business owners don't think too much about.  There are several ways that business owners typically set their price:

  1. They look at what everyone else in their industry does, and basically do the same.  Sometimes you can win by completely changing the model of how your price for your services.  For example lawyers typically charge by the hour.  However in The Client Revolution: "How do you set your prices?" Jay Shepherd describes his law practice that charges a fixed price based on client value.  The lesson is don't be afraid to think outside the norm.
  2. Another common mistake is that business owners charge based on what they think their service is worth, rather than what the client thinks it is worth.  Most often this will lead to undercharging as most people discount their own skills.
  3. In a related vein if you have done several similar projects before, and you can now do it faster and better, don't charge less because you can get it done faster.  You are still providing the same value.
  4. A cost plus model.  Again the mistake here is thinking that the cost of your raw materials has anything to do with the value the client gets.  The key is to realize the intangible value you add, and make sure that is charged for.

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