Posted by: devinmoore | January 25, 2006

Charge enough for services

The most common question I am asked about starting a small business is “how much should I charge for my services?” I am prone to respond “as much as possible”, but then the questions follow along the lines of, “well, how do you get people to pay that much?”

You must carefully describe your services and the things that make them valuable. When someone is accepting bids on a contract, underbidding in order to win is a dangerous game. You inevitably make certain concessions when you underbid to win a contract, and these concessions can end up causing your financial ruin. Any portion of the contract that is inviting uncertainty or risk is going to be a cost to you, so charge hourly and/or extra for that portion. Be sure that the customer understands the risks involved, and why you’re charging more for certain things and less for others. If they know why the costs are higher, they are much more likely to agree with your implementation strategy and pricing. If the customer accepts a lower bid than yours, rest comfortably that you didn’t shoot too low and get yourself into trouble.

Lesson: You must charge enough for your services to achieve success, and then let the success sell your future customers on the necessity of your premium charges. Low prices may work at first, but the lack of quality will sacrifice future customers for immediate gains. Furthermore, inadequately budgeting for risk (i.e. maintenance) will make a slow, long-term “financially bleeding to death” scenario unavoidable.

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