When people think of brand positioning, one of the first things they look at is pricing.
Think about how the mass market views brands.
Gucci, BMW, and Dom Perignon are largely accepted as “premium brands” because people know they have a high cost.
Yes, any clothing, car, or champagne aficionado would tell you that it is more than price. For Gucci, it’s about the fabrics, design, and construction of the pieces. For BMW, it’s about the materials, engineering, and handling of the car. Dom Perignon is particular about where they grow their grapes and how they bottle their product.
Still, at the end of the day, most people don’t evaluate the brand’s position giving mind to those factors; they just know the brands are expensive, so it must follow that they are premium.
Given this established correlation between pricing and brand positioning, it follows that when service providers seek to establish their brand, one of the first places they look to elevate their position is their price.
Higher hourly rates generally mean you have more experience, and you’re in greater demand. This drives your prices up, in turn further solidifying the desire to work with you because you are “worth it.”
However, relying solely on pricing to solidify your brand as premium can be problematic if you haven’t given thought to other aspects of your pricing structure. You also need to be mindful of setting up payment terms that enforce your high hourly rate, and you need to consider how payment vehicles alter consumer perception of your brand.
Last week, I had the pleasure of sitting down with Matt Bralove, Business and Tax Advisor at Zone Accounting, to talk about how consultants and coaches can set up pricing, payment terms, and payment vehicles to scale their business and elevate their brand.
Watch the full video here:
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If you don’t want to watch, here are a few takeaway’s:
- When establishing your hourly rate, do more than factor in your experience and competition.
As Matt points out, your hourly rate should certainly be in line with your experience, and priced out appropriately in relation to your industry’s competitive landscape. For most, this is where establishing an hourly rate ends. I have 10 years of experience and my competition is $150/hour, so my rate will be $200 (if you go premium), or my rate will be $125 (if you want to compete on price).
Matt suggests taking a step further than strictly considering your experience and competition. He advocates coming up with your yearly income goals and then reverse engineering your desired working hours to see where you land. Therefore, if you seek to make $100,000 a year, and work 20 hours a week (with three weeks of vacation), your hourly rate needs to be above $102.00 before you even consider expenses.
- Believe in your number.
If you decide to have an hourly rate of $300 or more, but you don’t believe you are worth that, it doesn’t matter what justification you have, your clients won’t believe it either.
You need to be able to easily articulate your hourly rate without flinching, and you need to be even more ok watching someone walk away because it’s too much. If you aren’t, you need to consider lowering your rate, or doing a deep dive to build your confidence and fully understand your value.
- Set payment structures and communicate them early on.
For many consultants, it isn’t their rate they feel uncomfortable discussing, it’s their payment terms. Many follow a default “invoice due within 30 days of receipt” model. This isn’t always advisable, especially if you are branding yourself as an expert. If you are premium and you charge a high hourly rate, you solidify your premium position by also demanding clients pay you before you even meet with them. (I.E.: Securing payment to hold time). This paints you as ultra exclusive. If you have a high hourly rate then allow people months of time to pay you back and invoices are lingering, your actions are in conflict with your brand position.
At the end of the day, no matter what your brand position, you should have documented payment terms and they should be sent to clients and discussed well in advance. Matt makes an excellent point by saying, “If you don’t have rules, you let clients dictate payment terms. If you do have rules, you can give yourself the room to bend or break them, because they are there in the first place.” I.E. If you dictate payment needs to be made upfront, and have a great history with a trustworthy client who wants a concession, you can feel comfortable making the exception. If you don’t have the rules to bend in the first place, it will ALWAYS be up to your client.
- Make it easy for your clients to pay you.
Accelerate cash flow and elevate your brand position by making it easy for clients to pay you. Just because you are in the service industry does not mean you are immune from payment expectations your clients have formed based upon other industries. In a Paypal, Apple Pay, Venmo driven world, where paying for virtually anything is as easy as one click or the touch of your thumb print, you will justify your brand position and create an overall positive brand experience by setting up payment vehicles like ACH and acceptance of credit cards. You get the benefit of receiving cash faster and a favorable opinion. People sit on things that are a pain to do. Make your customers’ lives easier, and they’ll keep coming back.
- Seriously consider getting a bookkeeper.
Chasing down clients for payments, logging accounts payables and receivables, and generating invoices is NOT what you should be focusing on. It is worth it to pay someone $30 an hour and net $120 in gained time, rather than spending your $150/hour time to manage your own books. The extra benefit of doing this? As Matt brilliantly points out, “Not only will this person manage your books, you get a financial education from an expert. You can sit down and learn about your P&L and profit margins through their expert guidance, rather than trying to figure it all out yourself.” In addition to the reduced stress and education, you also elevate your brand by having a team that supports your business.
As you begin planning for 2017, sit down and take a look at your numbers, payment terms, and payment methods. Ask yourself if your rates are profitable enough, if your payment terms support your rates, and if you’re making it convenient for your customers to pay. By addressing all three, you set expectations and take actions that elevate your brand and lead to an overall positive brand experience.
This is article is part two of a five-part series called Scaling Your Business and Your Brand in 2017. Read the first part here: (link to LinkedIn Package article and on blog link to package blog post). Next week, I will publish how to optimize your workflow to create consistency and efficiency in your business.
Which payment vehicles are you using? How did you determine your rates? Comment below.