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5 ways to calculate the value you provide with your services

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I had a good conversation yesterday with someone who was new to self-employment and was really baffled by the process of setting an hourly rate for his services.

I went over a framework for understanding value that I learned from a prior client, Skip Miller, who wrote ProActive Selling.

When calculating the value your services provide,  consider the following elements:

Return on Investment.

Otherwise known as “I give you money, and I want it back. Many times over.”

When people invest in your product or service, how does it help them make money or save money? If they coach with you, do they negotiate a better salary? Get healthier and save money that they would have spent at the doctor’s office? If you consult with them about marketing strategy, do they increase the conversion rate of new clients, resulting in $100k in new revenue for the year?

The more you can understand the many ways people will make or save money as a result of working with you, the more confident you will feel about your value.

Risk

How is your product or service reducing risk for your customers? Does your automated computer backup service ensure your customer will not lose all her work files and family photos when her hard drive fails? Are you a totally reliable web designer who will not run off into the Siberian tundra halfway through a web design? Is your advice so trustworthy that new entrepreneurs will avoid costly and embarrassing mistakes?

If you have ever purchased an extended warranty for an appliance or piece of technology, you made a buying decision based on risk.

Time

How does your product or service save time, speed time to market, maximize the value of time? Even if your customers know how to do what you sell (create a website, clean their house, walk their dog, take pictures, transcribe audios), they will pay you a premium to do it for them if it will save them time.

Value really comes into play when your customers use the time you free up for them on high-return activities like finding new customers, creating new products or spending time with their family. This is a major selling point of VA services like Marta Costa’s (my wonderful VA).

Brand

There is a reason we pay more for shirts with a little alligator on the pocket. As well as spent 12 hours in the blazing sun waiting in line for the new iPhone. The reason is brand. We like to be associated with products and services that say something about who we are. “Chris Brogan is consulting with my company about our social media strategy” means something cool in certain business circles, And it is worth paying more for.

Who you are or what your company represents does translate into value for your customers.

Motivational Direction

The field of Neuro-Linguistic Programming (NLP) says we are wired to buy something for one of two “motivational directions” — toward pleasure (“These shoes are so cute! I have to have them!” “This program would be so invigorating!”) or away from pain (“These shoes are getting old, I better get some new ones.” “If I don’t attend this program, my business will be left behind”).

The more you understand the primary motivational direction of your customers, you can tailor your language to stimulate their buying appetite.

Your value is SO much more than the time you sit in a chair working for a client. Explore the many ways you create value, and feel your backbone straighten when you name your rates. You are worth it.

I did an entire series on pricing with some great interviews including Andrea J. Lee, Mark Silver, Ramit Sethi, Alexis Neely and Sherri Garrity. Read more here. The Price is Right Interview Series

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11 Responses to “5 ways to calculate the value you provide with your services”

  1. [...] can I deliver tremendous, measurable value to the people I want to work [...]

  2. [...] addition to making sure that you create something truly useful that people will get value from, you have to clearly identify your ideal client. And figure out the ecosystems and watering holes [...]

  3. Usama says:

    Investing time is very crucial to hit your goals. Especially at the beginning or your start-up to get you up and running, a whole lot of time and effort is needed.

  4. [...] I had a good conversation yesterday with someone who was new to self-employment and was really baffled by the process of setting an hourly rate for his services.I went over a framework for understanding value that I learned from a prior client, Skip Miller, who wrote ProActive Selling.When calculating the value your services provide,  consider [...] Original post [...]

  5. Graydon says:

    Those are great items to note as factors in considering what your price should be… sometimes you struggle with just trying to figure out the minimum point to start from.

    http://www.nppa.org/professional_development/business_practices/cdb/cdbcalc.cfm

    The NPPA cost of business calculator is geared towards photographers… but could easily be leveraged to other service businesses by interpreting a few of the boxes differently.

  6. Colin8ch says:

    I’ve always found it valuable to invest the time to really get to know your prospect’s pain that you are targeting your solution towards, just as good or better than they know the pain. Sometimes, because “it’s always just been done that way” they are even unaware of their pain. Knowing their pain intimately helps to present the potential ROI and how your product or service can save them more money/time/risk then your cost, make them more money/ time then your cost or provide them opportunities otherwise unavailable to them.

  7. Eitan Katz says:

    Great post. It might be obvious, but the five points are not mutually exclusive. And the more, the better (higher value).
    The Motivational Direction factor is very important. I always split the “away from pain” direction into two finer points:
    1. Addressing pain (current and felt very well in various aspects – money, resources, physical, emotional)
    2. Addressing fear (not current but very substantial).

  8. Mark Romney says:

    I lost my hair trying to figure out an hourly rate. It became a tug of war between what I felt I should charge versus what the customer would feel my services or product is worth.
    As I prepared that first invoice, I listed services, checkpoints, accomplishments and completions and charged a rate for these items. One lump sum based on what was accomplished met my revenue goal and the client was pleased with the progress.
    I was able to determine worth and charge for it. If I can do it faster, it benefits everyone and I make more per hour, but the result has a value to the customer. If it takes longer shame on me.

    I recommend price by the job or piece, everyone wins!

    POWER ON–Mark

  9. I totally love the ROI point of view. I am entering into the self-employment arena, too. This article is right on time!

  10. David Wang says:

    Great points Pam! I also really enjoyed your podcast series on pricing, especially the one with Alexis – she convinced me to stop using the hourly rate system and I feel that business has improved because of that.

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