Pricing is one of the most difficult things you'll do as a private service based professional. If you set your price too high, you won't make enough consultations to make a profit. If the price is too low, you risk operating at a financial loss as well as the client's not taking you seriously.
While there isn't a one-size-fits-all pricing strategy that will work for every profession/speciality, there are certain guidelines you can use to come to a price that makes sense for your setup and its clients. In this article, we'll discuss a few factors that can help you decide your consultancy fee.
WHAT TO CONSIDER WHEN SETTING A FEE?
Regardless of the speciality you operate in, there are two key areas where you'll want to do some more in-depth research:
1. Your target customers : Market research of your potential customers allows you to get to know the people you'd ultimately like to sell to. You can research online (For eg. In case of doctors –Practo, Lybrate etc.) and send out email surveys to existing clients. Look into demographics, interests, income and other factors that might influence how much someone is willing to pay for your consultancy.
2. The competition : Competitive research is about more than seeing what professionals charge for similar consultancy. You also need to think about whether the quality of theirs is comparable to yours and how your offering stands out in a crowded marketplace, for example, in areas of Old Gurgaon if compared with areas in New Gurgaon the consultation fee shall vary a lot.
Here is how you can calculate your service fee.
A SIMPLE STRATEGY FOR PRICING
Armed with some research-backed insights, you can get to work on the next part of consultancy pricing – choosing a number.
There are countless pricing strategies that you can use to choose that number, but complicated isn't always better. To start, try this simple three-step strategy for setting a consultancy fee:
1. Add up the variable costs per product. Totalling your variable costs can be easy or complex, depending on your service area. If you practice in an office shared space your variable costs are relatively straightforward, like Profrea’s spaces. Professionals who operate in their setup need to assess the costs of operations. Also, remember to include the cost of your time as well.
2. Add up your fixed costs per consultancy. Fixed costs are easier to calculate because they don't change from month-to-month. Rent is one example because it will be the same regardless of how many consultations you do.
3. Determine a profit margin. You also need to make some money from consultancy.
For "x" % profit margin as an example, you can calculate a target price using this equation:
Target Price = Variable cost per product / (1 - Your desired profit) margin as a decimal (which is 0.x in this case)
THE STEPS FORWARD
Setting a price might sound like one of those decisions that are etched in stone forever once they've been made. This assumption couldn't be further from the truth, however.
Always remember, the price you launch with isn't the price you're stuck with.
If the fee of your consultancy needs to change down the line, you are free to make the change. Some clients might be upset if the new price is higher, but you also need to make sure your pricing strategy allows you to turn a profit.
Once you have assessed your price, don't forget to assess your fixed costs. Additionally, if the target price you calculate is sky-high compared to the competition, you'll need to go back to the drawing board.