Pricing is one of the most complicated and difficult things to do in your business. And yet, you can’t ignore pricing challenges or price yourself into poverty—entrepreneurs can and should price their work sustainably.
As a pricing consultant and strategist, I hear many of my clients share that they either plugged their pay from a job into a calculator to achieve an hourly rate (please don’t charge by the hour—you can read more about that from me in the future) or emulated competitors’ prices. Neither of those approaches will take you to the next level in your business.
And, my clients tell me that they have a lot of fear about pricing. Are their rates too high? Will they alienate people? Are they being greedy? When it comes down to it, they worry about whether or not they’re being ethical in their approach to pricing.
Here’s the hard truth: It’s time to get serious about pricing!
And you can do so ethically, I promise.
Developing an ethical pricing strategy—one that serves both you and your clients—is more than just numbers on a spreadsheet.
You want to make sure the price aligns with the value of what you’re selling and that your clients feel like they are getting what they paid for. But you also want to make sure you’re compensating yourself and your team while making sure your business is profitable.
So how do you develop pricing that finds a balance between your business’s growth and your clients’ well-being?
Here are the 5 key components of an ethical pricing strategy that you need to consider when setting your rates:
Step 1: Price your services based on value.
“Value” is one of those nebulous things that we understand intrinsically but don’t always know how to articulate. Value is a feeling as much as a result.
It’s important for you to recognize that if you want to price your services ethically and still be profitable and support yourself and your goals, you must ensure that your prices are attached to value.
As long as you can showcase that your client is getting a value that is equal to or exceeds the price, you have made an ethical pricing decision. It’s that simple. (I see you there overly complicating this already!)
Many times we don’t really understand what value is or why it’s important. So we inadvertently make offers that aren’t correlated with value. To really understand how value plays a role in your pricing strategy, you need to understand the different types of value.
Customer Perceived Value
Customer (or client) perceived value is what people believe your offer is worth.
This is based on what they know about you. It could be what they’ve gathered from your marketing, testimonials, reviews, case studies, and anything else that communicates the value of what you do.
Considering perceived value is important when you have pricing conversations. Buyers will trade price for value. In other words, if they know that the offer is of value to them, they’re likely to be willing to pay a premium price for it. For example, at Unapologetic Wealth, our clients know that my Call in the Cash VIP Day is a high-level, true VIP service thanks to the testimonials and results we share. They reach out because they’ve seen the outcome of that service from other clients and so they assign a high value to that service.
The goal is to make sure that your marketing and brand positioning helps create an accurate perception of value so they aren’t surprised when they see the price.
Elevating your positioning can help you improve perceived value. For example, when I first started coaching, I was a money coach. And people didn’t want to pay for that. But if you tell people you offer “wealth planning,” as a service it’s suddenly perceived as more valuable. Just changing your title or the name of your service can help people perceive more value.
Positioning for value doesn’t have to be complicated!
Real Value
Real value is what your offer is actually worth, the dollars and cents or return on investment.
Improving real value involves actually honing your skillset and improving service delivery. Whether this is getting continuing education, learning new techniques, or getting better at processes and delivery, you will need to do things that are tangible so the client can recognize the increase in value. (But be careful to not spend all your time racking up certifications and credentials to create more and more “real value” that only matters to you, not your clients. This is a common problem faced by several of the Sales Personalities.)
Unethical pricing strategies lead to a huge gap between the perceived value (what your marketing says it does) and real value (what it actually does).
When the perceived value is much higher than the real value, customers will feel like they’ve been deceived, which you want to avoid at all costs.
Most people focus on improving the perceived value by hiring branding strategists and copywriters to elevate their marketing strategy. However, if you’re raising prices and you want to do so ethically, you will need to add real and perceived value to your offer.
Step Two: Price your services in a way that allows you to pay yourself generously and consistently.
When deciding on the price of a service, you need to take your own compensation into consideration. You need to make enough to cover your business expenses, and paying yourself is one of those expenses.
Many new business owners will overlook this part of their pricing strategy, especially those who still have a part- or full-time corporate job. Regardless of whether or not you have a job, you still need to pay yourself regularly from your business. Not only does this help you get on track to building a profitable business, but it also rewards you for all the work you’re pouring into growing your empire.
If you find that you are not paying yourself regularly, preferably on salary using a tool like Gusto, this is a sign that you’re not charging enough and you’ll need to set a higher price for your services. This can be a very hard lesson to learn, and even very successful on-paper entrepreneurs often don’t compensate themselves regularly.
There’s no glory in pricing yourself into poverty!
Step Three: Choose a price for your services that doesn’t make you resent your clients.
It’s not enough to choose a price that allows you to pay yourself and still make a profit. The pricing also needs to align with the time and amount of work you are putting into your clients. Create enough of a cushion to pay for the tools you need, the support your clients deserve, and provide a cushion to spoil and delight your clients. (More on that in a minute.)
You probably started your own business to have time freedom. However, when your prices don’t align with the time and resources you’re putting into client work, this can make you bitter about your business and eventually your clients. This is a terrible situation to be in and one of the reasons entrepreneurs burn out.
If your offer provides one-on-one access to you, it should be set at a premium rate. Your time is worth a premium.
And when you give lots of your time to people who are not paying that premium, you will likely start to resent them.
Consider how much access a client has to you as part of the offer and how much time you will spend on each client. Then, choose a price that does not make you feel like you’re being taken advantage of.
You deserve pricing that creates freedom.
Step Four: Price your services for profit.
Profit is a tricky thing to price for because revenue is not the only factor that impacts profit. You likely understand that profit is what’s left after you’ve paid your expenses, the cost of goods sold, and yourself (yes, that salary we talked about earlier) while making whatever other investments you want to make in your business.
You can manipulate profit by spending less money. I’ve seen businesses make 90% profit because they don’t spend much. And I’ve seen 10-million-dollar businesses that are left with very little profit because they spent $9.9 million on expenses.
The easiest way to increase profit is to increase revenue without increasing costs. And raising your rates is one way to boost revenue without adding extra work to your plate.
Why should you consider profit as part of your ethical pricing strategy?
If we want to grow wealth and impact future generations, we must put profitable businesses with robust pricing structures at the forefront.
Step Five: Set prices that allow you to care for your clients and yourself.
This is perhaps the most overlooked element of ethical pricing. If you want to truly care for your clients and provide real value, you need to be able to care for yourself. When you’re worn down and burnt out, you aren’t doing your clients any favors.
Real talk? If you show up for a Zoom meeting, exhausted, scattered, and uncreative because you’re doing too much for too little, you are not serving your clients and this is NOT an ethical approach to pricing.
Building a business around your life (instead of the other way around) allows you to be present and focused on providing the best possible service to your clients. And part of building a business around your life is taking things like your responsibilities, family, travel, energy levels, and lifestyle into account when creating your offers and setting your prices.
When you set a price that allows you to meet your revenue goals with fewer clients, you are able to provide a better experience for the clients you do have. Instead of stretching yourself thin or not being able to give your clients the time they need to succeed, you should price in a way that does not force you to take on more clients than you can handle.
It’s also important to consider that providing quality customer service requires more than just you.
If you want to be in a place where you can hire others to help you provide a better experience for your clients, you need to be profitable and that requires you to price accordingly.
Key Takeaways: Ethical Pricing Strategies
- Ethical pricing is about pricing in a way that serves both your business and your clients.
- Remember, not everyone is meant to be your client.
- Ethical pricing does NOT mean affordable to everyone. It does NOT mean that you have to create a low-ticket offer that is accessible to people at lower price points.
- Focus your pricing strategy on aligning prices with the value of your offer while still being able to pay yourself, make a profit, and care for your clients in the way they deserve to be cared for.
As a pricing and sales expert, one of my favorite things to do is help entrepreneurs ethically price and position their business to prosper. If you are ready to start attracting the high-level clients you want, apply for a VIP day.