Words of wisdom when it comes to pricing your services.

That which costs little is less valued. — Miguel de Cervantes

Lesson: Underselling may hurt you more than you’ll ever know.

Do you offer a free consultation, complimentary evaluation or other type of no-charge offering (where you’re actually performing a service to a potential client)?

Like many coaches, I offer a one-time sample coaching session. When I first started coaching, I even coached a select few for 6 months, at no charge, in exchange for meaningful testimonials.

So when a client told me today that she has been offering her services free of charge in order to get more experience, build her confidence and receive referrals, I understood where she was coming from. I didn’t let her off the hook that easily, though. I explained to her that this month I’d help her reduce the number hours not being paid, replacing them with paying clients.

I hadn’t realized how serious my client’s situation was until later on, when she told me she has been servicing 3 “clients” for 1 year as a “volunteer” and she has just recently taken on 2 more “clients.”

When I heard that, our conversation came to a screeching halt. The intense part of my personality grabbed firm hold and wouldn’t let go! Every inch of my body wanted to scream “Are you crazy????!!! Wake up!!!“

This woman needed my help. So when I regained my composure, I calmly asked her to describe the conditions surrounding these “clients”. She said they really needed her services, but when she told them her fee was $600 a month, they declined, saying they couldn’t afford it. Her counteroffer? She’d do the work anyways, but for free; if they had any referrals, to please send them her way.

No time line. No expiry date. No conditions. No contract. Nothing.

OUCH! Not only is she not making money, she’s severely hurting her credibility. I came up with a role-playing exercise to powerfully illustrate the gravity of her situation, in hopes she would get the point. Please play along.

I set up the scene by asking her to imagine me at her door, promoting my housecleaning services. It went something like this:

Me: Hi. My name is Cristina. I’m offering my housecleaning services in your neighborhood. I charge $15 an hour and it will take me about 4 hours to clean your house each week, for a total of $240 per month. Are you interested?

Client (after some prompting to realistically stay in character): I’d love to have the help around the house, but it’s a little beyond my budget right now.

Me: OK. How about I do it for free?

My client, no longer playing the role, said “I’d say a firm NO! How can I trust her?” BAM! Point made.

What would have been your reaction? Personally, I would have been a little skeptical, but if someone offered to clean my house for free, I think I’d jump on the opportunity to get as much free cleaning as possible.

This is exactly what these “clients” of hers are doing… Taking her for a ride.

Are you spending more time giving away your services in the name of getting more experience, confidence, referrals, testimonials or for whatever reason, than you are servicing paying clients? If so, the harsh truth is you are not a business person, you have a hobby.

The message you’re sending is “I’m not really good at this yet. You’d be doing me a huge favor by pretending to be my client. I promise you’ll like me, just let me do this for you for free.“

Desperation does not endear you. It just looks bad.

Do you need a reality check? Call me! I’ll give you 45 minutes of my time, but after that you have to pay my fee!!

Get out there and and start showing the world what you’re worth!

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The Globe and Mail came out with an interesting article last week, entitled Are women shortchanging themselves?

Here are quotes I found most interesting:

It seems that women, who have fought hard for pay equity, shortchange themselves when they launch their own businesses. Compared with men, they typically charge less and their businesses generate less revenue.[...]

“I always like to offer services to people I think can really benefit from them, and that isn’t always the people who can pay top dollar,” said Ms. Morris.[...]

“Generally, I think women may start off charging about the same as men these days. But from the conversations I have had with women, their pricing is more flexible than men’s,”[...]

In addition, women, unlike men, said they would be better off financially if they were working as employees rather than as business owners. When asked whether they were making more money than they would if they worked for someone else, female entrepreneurs were much less likely to agree (38 per cent) than their male peers (55 per cent), the survey found.[...]

When it comes to setting rates, women charge less than men do for the same work or similar work “because many women tend to confuse business issues with personal issues.”[...]

“For example, [women] tend to act on feelings more than on rational thinking. . . . If the client says ‘it’s too expensive’ they might hear ‘you are not worth that much’ and decide to lower the price.”[...]

Among the factors that influence revenue are formal business training and the number of years a person has been in business, he said. It can take three to five years for a business to show real growth, and women, who are starting their own businesses in increasing numbers, have entered the small business game later than men have, he said.

I have to say that I am ‘guilty’ of negotiating my fee and I know I charge less than most coaches. However, I don’t believe it’s because I’m a woman… I do it because:

1. Market research tells me so. I have to agree with Ms. Morris’ statement (quoted above). My target market (self-employed service-based entrepreneurs, usually starting their business) can’t afford the ‘typical’ coaching rate. So either I: (a) lower my fee, (b) select a new target market, or (c) charge more, keep the same target and get little to no business.
2. I get something out of it too. When negotiating my fee, it’s because we’ve created a win-win situation for all involved (including myself).

This is an interesting topic, and I’d love to hear what others have to say on the subject.

Is this really a gender issue? Whether you’re a man or woman entrepreneur, do you tend to be flexible with your rate? If so, what does someone have to say to make you lower your price? Is your standard fee lower than your competition? Why? Does this hurt your business? Would you be better off as an employee? What’s your reply to someone who says your fee is too high?

I love sharing questions that come up on the various online networking groups I belong to, because I feel they reflect what’s really going on in business.

For example, last week, this question came up:

I am looking at a starting a VA business part time while maintaining my full time status at work for at least 6 months. I want to still have an income while I build my business. Any suggestions? Also, what is the first step to start a VA business after I have decided to do it?

I would have loved to share with you what other experienced members had to share… but I was the only one to reply:

I would not suggest you spend too much money on your business just yet (except for what I mention below), unless you are missing critical equipment or software.

1. The VERY first thing I suggest you do is to clearly define the services you offer. Do you have a specialty? Clearly define that part of your business. Be specific. There are a lot of VAs out there offering general admin services, so how will you set yourself apart? Don’t add services you think you’d like to learn or you THINK you can do. That will come later. If you’re in a hurry to get started, it’s not critical to have a business name yet. Just use your personal name.
2. Second is to set your fees — hourly and retainer (you may want to consider a “package fee” if your services lend themselves to such a format).
3. Third is to choose a target market that needs your services and can pay your fee.

At this point, don’t get stuck in “analysis paralysis”. There’s SO much information out there, and you can get stuck into thinking that you have to do all of those things to get going. While they’ll help (like having a website, brochures, marketing kit, press release, articles, head shots, business bank account, separate phone line, etc, etc), they are NOT critical in the start up phase.

These are just my suggestions, but here is my list of things I think anyone starting a service-based business MUST spend the few dollars on:

• If you don’t have a business name or logo yet, that’s OK. But they ARE important. Start thinking about it. Brainstorm with someone if it helps.
• Even if you don’t have the money to have a professional website created, you WILL want to spend the few dollars to register a domain name. Again, if you don’t have a company name, that’s OK; register your own name to start with. You can always purchase another domain and redirect later.
• Once that’s done, you DEFINITELY want to get business cards made — even if you don’t have a logo, business name or website yet. Have a professional-looking card designed with your name, email address (the one with your registered domain name – DON’T use a generic account as it will hurt your credibility from the start), your title, phone number and the services you offer.

Then you’ve got to get out there and market yourself. Networking is THE best strategy to get known. You are starting off right if you’ve joined VA networking groups. If you live in a town (or close to one) that has networking groups, join them if you think members are part of your target market.

You’ll want to tap into your own network you have now. Start spreading the word to your colleagues, family, friends, associates, etc… Slowly you’ll see your business taking on more shape then you can concentrate on your website, marketing material, and other, more involved marketing strategies.

While this question was specifically about starting a VA business, I believe the advice applies to most anyone starting a service-based business.

What do you think? What did I forget to add? What would you have answered? What were the steps you took? What do you wish someone told you?