Q: Pricing Professional Services

Q: I am starting a service business that will help clients with advertising and search engine marketing but I am not sure how to price my services. Do you have any suggestions for how to look at pricing professional services?

Pricing Professional Services

Pricing professional service has a very different physics from pricing products: service hours cannot be stockpiled, they arrive one hour every hour, and they have to be delivered synchronously. Even if you are pricing your services based on value and not on time it’s a very different equation from product pricing.  You might look at

• Managing the Professional Service Firm by David Maister
• Winning the Professional Service Sale by Michael McLaughlin
• Rainmaking by Ford Harding 
• Value Based Fees by Alan Weiss
• Secrets of Consulting by Gerald Weinberg

All have good models for managing, pricing, and marketing professional services.

Putting a Price On Your Head

Weinberg’s Secrets of Consulting is probably the best book to start with for a solo practice, but all of them are worth reading for useful perspectives on consulting. In chapter 12 Weinberg addresses “Putting a Price On Your Head” directly and offers ten rules of pricing:

1. Pricing has many functions, only one of which is the exchange of money.
2. The more they pay you, the more they love you. The less they pay you, the less they respect you.
3. The money is usually the smallest part of the price.
4. Pricing is not a zero-sum game.
5. If you need the money, don’t take the job.
6. If they don’t like your work, don’t take their money.
7. Money is more than price.
8. Price is not a thing; it’s a negotiated relationship.
9. Follow the principle of least regret: set the price so you won’t regret it either way.
10. All prices are ultimately based on feelings, both yours and theirs.

All of these rules also apply to early software sales, which often embed a significant service project or deliver a result as a service to lay the groundwork for a subsequent product sale. The other books are useful reading for the same reason for software entrepreneurs who are trying to navigate the early sales process or who are bootstrapping by offering services as well as a product.

For a straight up analysis of product pricing The Strategy and Tactics of Pricing” by Thomas Nagle is the best book that I have read.

Related Blog Posts

• SKMurphy Newsletter Archive
• Tangible Costs and Pricing to Value”
• How to Pull the Trigger on a Pricing Model
• Mark Stiving: Three Pricing Principles I confirmed in Las Vegas
• Peter Cohan: Differentiating Your Offer Starts With the First Contact With the Customer
• Price, Value, and Your Prospect’s Perception of Risk
• Mapping the Path to Your First Dollar of Revenue

Image credit: Liselotte Keizer “Co-Creation for Better Idea Generation“