Setting and Negotiating Prices and Fees
October 10, 2007
Setting and negotiating prices and fees is an integral part of authentic promotion. This is true in part because of the stewardship relationship you have with your business. In addition, naming your price with confidence is part and parcel of embodying your offer.
Doing the right work for the right client at the right price requires a bit of homework. Let’s start with setting fees and prices. (Artists: this section is tailored to the needs of consulting and service professionals. While the principles pertain to you, the nuts and bolts of pricing creative work are not covered in detail. For an excellent discussion of pricing artwork, see Caroll Michels’ book How to survive and prosper as an artist.)
Setting prices and fees is a function of several variables:
- Your desired income and the costs of earning it
- The amount of time available for you to earn that income
- The value (perceived and actual) that a client places on your services
- What the market will bear
- What your competition charges
Setting Prices / Fees and Hidden Costs of Stewardship
Calculating fees based on what you want to earn and what it costs you to earn it is relatively simple. However, if you are accustomed to earning a paycheck, there are some refinements to this simple notion that may have escaped your notice.
Many businesses are vulnerable to changes in the marketplace. Depending on your profession, it is wise to plan for times when work is scarce. By building reserves for these times, you can use them not only to support yourself when work is scarce, but also to enjoy a long-desired vacation or to take advanced training. If you are in a vulnerable industry, you will need to earn enough to eventually save one to two years’ living expenses.
This lesson was vividly demonstrated to thousands of dot-commers during the recent boom and bust. Contractors (and employees) earned unprecedented incomes and quickly evolved spending habits to match. When the bust came, many were caught in a double bind: loss of income on one hand and high living expenses on the other.
If you are just starting out, make a plan to save part of your income until you have built up this cushion. Be open to supplementing your income from other sources until your business can support you and allow you to save at least 10% of your income. Don’t let the thrill of collecting a high hourly billing rate seduce you into living an expensive lifestyle that prevents you from building reserves.
