The Accomplished Solopreneur

Issue 24.13

Saturday, March 30, 2024

Image credit of DALL-E via ChatGPT

Build a solopreneur business - Part 3: Price it right

This is part 3 of a 5-part series about building a business.

In this series:

  1. Define your niche
  1. Craft your offer
  1. Price it right (this article)
  1. Design your marketing
  1. Start your engines

Part 3: Price it right

Pricing seems to be one of those things we  struggle with. It’s understandable, because if we price too low, we have to work too hard for too little. Price too high, and the fear is we may price ourselves out of the market.

Here’s the simple, but highly effective, method I use and recommend. It consists of five steps:

  1. Start with a baseline
  1. Check the market
  1. Anchor against value
  1. Work on your mindset
  1. Set your price

Here we go.

Step 1: Start with a baseline

You’re selling services, and that means you are effectively selling your time. Your time is fixed, so you have to charge at least a certain amount per hour. This is your baseline.

Here’s how to calculate it (pull up a spreadsheet):

The calculations are simple:

  • I’m going to work 46 weeks per year (6 weeks off) for 40 hours a week. This gives me 1,840 working hours per year.
  • I estimate that I will be able to spend 50% of my time actually billing clients - the other 50% will be spent on admin, marketing, product development and so on. That leaves 920 billable working hours per year.
  • If my target income is $150,000 per year, I have to charge at least $163 per hour.

If you deliver productized services, and a “product” takes 30 hours to deliver, you can easily calculate that you have to price the product at at least $4,890.

Note that this is not what you’re going to charge - it’s just a baseline and we can never fall under that.

Step 2: Check the market (optional)

Now it’s time to do a little bit of research and see what others are charging for similar services. This step is optional, because we’re not competing with the general market - but it will give you some valuable insights.

This will help you understand where you are relative to others, but is not a guideline for what you should be charging.

Accurate data can be difficult to get because people are coy about how much they charge and earn. One of the fastest ways to get your first data is to ask the Perplexity AI. Just type in your question, for example “how much does an IT expert with 20 years experience charge per hour in the United States?”

You will get some data, but my experience is that the numbers are typically low. The nice thing about Perplexity AI is that it offers follow-up questions which can give you more data.

Also check with agencies - their data will be more current and specific to your expertise and experience.

What to do with this data

Understanding what the general market rates are will help you understand how your clients will be thinking, and how to counter objections to your price.

While this data is interesting, and potentially insightful, remember you’re not competing against general market rates. Your niche is way more valuable than the general market.

Most rates will tell you what it costs to hire someone with a specific expertise, but as we will see in the next step, you’re not just offering expertise.

Step 3: Anchor against value

Last week we looked at how you craft your offer, and the first step was to start with the outcome. Let’s see how this relates to price.

Let’s say you develop websites for dentists. There are fundamentally two ways of pitching this.

Option 1: Focus on what you do

When you pitch “what you do” you say something like “I develop killer websites for dentists”.

Immediately, you’ve put your clients in the position to have to think about websites. Of course they will think about all the low-cost ways of getting a killer website. The focus is on the website - the “what” they get.

You’ve put yourself in a position where you have to compete on price.

Option 2: Focus on the outcome

When you focus on the outcome, you pitch yourself as something like this: “I develop websites for dentists that triple the conversion rate from searchers to patients and double their lifetime value.”

Now, your potential clients are thinking “what would my business look like if I get three times as many patients just from my website?” And “double the lifetime value - that’s amazing”.

They’re no longer thinking about the website (the “what”) - they’re thinking about the outcome (what it’s worth to them).

How this helps you

You know your niche, right? So you know (in this example), how a dentist makes money, and the lifetime value of a patient.

Now you can anchor your value like this:

  • Your website gets about 100 new visits per month. With better SEO optimization, we can easily quadruple that.
  • Let’s assume your conversion rate from visitors to patients is a generous 2%. With better copy and opt-in on your website, I know we can easily up that to at least 5%.
  • So 400 new visitors per month with a 5% conversion rate gives you 20 new patients per month, compared to 2 per month.
  • With a 5-year value of $12,000 per patient, these 18 new patients per month represent a $216,000 increase in gross revenue over 5 years. or an average of $43K per year.
  • I will build you a website that gets these kinds of results for $8,000.

So now the dentist is looking at spending $8,000 to get $216,000 in new business over the next 5 years. The only real decision they have to make is how to handle 18 new patients per month.

But there’s a catch

The catch of course is that you have to deliver the results. Don’t promise things you can’t deliver on - that won’t last very long.

This is the value of a niche. The better you understand your clients, the problems they have to deal with, and where real value for them lies, the better you can help them.

Step 4: Work on your mindset

The most difficult part is working on your mindset, specifically:

  • What you think you’re worth
  • How confident you are about that value.

I’ve written about Pia Silva, the author of Badass your brand, before. Since those articles, she’s taken a different course in life and is no longer running Worst of All Design (she now runs No BS Branding), but one thing stuck in my mind:

At the height of their business, they confidently charged close to $30,000 for a 2-day brand makeover, and there was a waiting list.

Pia and her small team were supremely confident that they could deliver value. They also increased their prices radically as their business grew: $9,450 for a 2-day Brandup in 2015, up to $29,950 for the same offer in 2021.

Developing the mindset (and authority) to charge these kinds of prices is a big subject (and I will cover it in future), but there’s a couple of things to keep in mind:

  • Your opinion of what you’re worth (and your relationship to money) will be reflected in your pricing.
  • “I need clients” is fundamentally different from “clients need me”.

Now we have everything we need to actually price our services.

Step 5: Set your price

Here’s what we have so far:

  • We know what our baseline is - the very minimum we need to charge per hour of service delivered to get to our target income.
  • We’ve checked the market to understand how clients may be thinking about our services.
  • We’ve anchored our price against the value our clients can get.
  • We know that our mindset is the biggest barrier to pricing our services.

With that in mind, we can set our price. There’s only one important thing here.

Always price at the high end

There’s a “common wisdom” that you can price yourself completely out of the market. To some extent that’s true, but keep in mind there are people who will pay over $600K for luggage.

We need to be sensible, but not stupid. Here are the facts:

If you price low, you will need to:

  • Make lots of sales to price-sensitive customers.
  • Put in a commensurate marketing effort to get loads of clients.
  • Compete with all the other low-cost, low-value offerings.

If you price high:

  • You have to sell less to make the same income.
  • Clients are less price-sensitive (and more value-focused).
  • You will work less (because you only serve a small number of clients).

So here’s what you need to do.

Set a sensible, but not stupid, price

Only 3 steps here:

  • Set what you think is a sensible price for your (preferably productized) service.
  • Double the price.
  • Work on what you can do to package and present the offer so it’s worth it.

Our example of websites for dentists above is a case in point. I gave the example of $8,000 for the website above which is low to reasonable for most small business websites - so how can we justify doubling the price?

How about $16,000 for:

  • Website development including copy, branding, and contact form.
  • Keyword and SEO optimization to rank high in Google searches.
  • Full privacy compliance.
  • Recommendations for extending patient lifetime.
  • Self-serve content updates.
  • 24 months of free reasonable updates within 2 business days.
  • 24 months of real-time monitoring and ongoing SEO optimization to maintain high rankings
  • 24 months of real-time monitoring of reviews and responding to each (hello Google Alerts).
  • Free monthly performance reports.
  • And best of all, your website will be up and running in 2 weeks.

You’ve now turned “just a website” into 2 years of website, support and ongoing tech stuff your client doesn’t want to deal with anyway. And you can automate most of this (in fact you will have to so you’re not swamped with repetitive work).

I think that’s great value for $16,000 - even more.

And you only need to sell 10 per year to reach your target income (in our example at the start) compared to 20 per year at half the price.

Over to you

The example above is likely not what you do, but all the steps, and principles, definitely apply. I would love to hear how you’re doing with this.

That’s it for this week. See you next week for part 4!