Ready to let customers set your prices?

by Lilia Shirman on April 15, 2009

in Customer relationships,Pricing,Sales Tips

I hate hate hate pricing my consulting work.   There is always a tension between the value it brings to the client (which gurus like Alan Weiss will tell you is the only thing that matters), the reality of the client’s budget, the amount of effort and expertise required, internal company politics, etc.

So even before reading the article about a coffee shop that does not post prices, I had tried handing the pricing reigns to clients by asking some version of, “What do you think this work should cost, given the value you expect it will bring?”

Results?  Some clients did not want to name a number, and I ended up pricing the project as usual.  Some DID name a price: always higher than I would have quoted.   The difference:  Clients who were comfortable naming a price already knew me and had worked with my firm before.  It seems letting your customer set the price may be a great model when:

1. The customer is well-informed about the product and its value, or can become informed easily and quickly as in the case of the coffee shop. (This is the basis for free trials: Assume the customer will assign little or no value when first encountering a product. Depend on familiarity leading customers to agree with you on price.)

2. The customer has had some exposure to competing products and prices, and has a basis for comparing the relative worth of your product vs. the others.

3. The customer has a relationship with you, even if only a momentary one (note in the video that the cafe owner describes people “looking him in the eye and stating what they think is fair”)

Share your thoughts on if and when letting customers set the price is the right thing to do.

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  • http://blackhousecreative.blogspot.com laura

    I feel your pain with setting prices. I have tried to get clients to tell me what they think, but they are very hesitant. I think WE have to get more comfortable with our value. We pay lawyers hundreds of dollars an hour and they give us NOTHING but their time/consultation. We do not walk away with an ad or a plan. Maybe we get a Last Will and Testament. But basically it is their expert opinion we get. But no one bats an eye at the lawyer hourly fee. And what we do is revenue generating. We drive sales and ROI. We should not be beaten up by clients over our rates not feel apologetic for those rates. Ideas are currency. You don’t ask the cobbler how many hours it took to make the shoes. You buy ‘em because you love them.
    I say we set the price and we feel confident in doing so.

    • lshirman

      Laura,
      You make a great point about the importance of understanding your own value and having the confidence to claim it. My assertion, so far proved out, is that once you have the ability to do that, the next step is to demonstrate that value so effectively that informed clients will lead the way in raising your prices for you.

      • F Mersk

        For professional services such as consulting this is typical problem: setting prices, determining value, asking for the fair value, etc.

        I like the way that value is established in Mahan Khalsa’s book, “Let’s get real or let’s not play”. He offers a way that he used working at a large consulting where first you establish that is a measurable problem that needs to be fixed.

        Then you determine the value of fixing the problem. The value is now clearly established so then spending $300k to fix a $30M problem (over 3-5 year total value) becomes moot point.

        I am in sales – I loved this book. Too many consultative sales do not practice this way of doing sales. Perhaps because they are not professional consulting salespeople. I am. It gets to the heart of the matter. And in the end gets the price is much higher than expected. Furthermore this established a basis for repeated projects and referrals.

        Cheers,
        FMersk

        • http://www.shirmangroup.com lshirman

          Fmersk,
          You are right that Khalsa’s and others’ (Alan Weiss, for example) concept of value-based pricing is optimal. Its a collaborative effort that creates value even in the pricing process itself, by identifying specific and measurable objectives. Unfortunately, many clients either can’t quantify the likelihood of long-term results, or more frequently, can’t allocate the investment up front for value that will be accrued over 3 to 5 years. To overcome the uncertainty, Accenture and other big firms have tried tying the actual price paid to actual results, with mixed success.

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