OK, what started out as a week long series on pricing has stretched to 10 days, part one, and two, discussions on hourly billing, project billing, and alternative billing, along with a post on creating information products have gone before. My final thought when it comes to pricing for professional service firms is: Your price is probably too low!

How can I say this with such certainty?

Who tells you about your pricing most often? Your prospects, right? What do they say? They tell you it’s too high, and from their perspective it is. But let’s look at this from your perspective.

If you are a service firm with a cost structure where you have 50% sales going to pay staff, 25% of sales paying for overhead, and the rest going to partner profits, then a 10% price increase provides a 40% increase in profits. (If your profits as a percentage of sales are lower, then the profit increase from a 10% price increase is even more dramatic.) So far, increasing prices is a really good thing, right?

“But wait a minute, Brad – if I increase my prices, I lose some of my clients. My sales will drop.”

That’s true – so how much would your sales have to drop to reach the same level of profits? If you are billing $2M, with profits of $500K (25% of sales) and you increase your price by 10%, you could bill $1.43M and still make $500K. Wouldn’t you rather do 25% less work and earn the same amount?

Also, who would buy your services at that higher price? Only those companies who knew they would really benefit from your work. Only those companies who really needed you and would do anything to improve their situation. Do those sound like clients you want to work for, ones who follow your advice, get great results, and tell their friends and colleagues how great you are? You bet.

So what’s stopping you from raising those prices? In my experience, what stops most people is confidence. You know that if they raise you prices, people will expect more from you. You will, in fact, have to deliver more value and that scares you. But I want a service provider who is confident in the value they offer, has a boatload of clients who agree and has the confidence to ask me for a price that makes me gulp (Looking for that kind of confidence? Maybe The Business Owner’s Champion is for you!).

So what could happen if you raised your prices? You could make more money; or you could make the same money, but just deliver better work for fewer people who love you more because you are making a HUGE impact.

Are you priced right, or is there room to charge more?

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Brad Farris is a small business advisor with Anchor Advisors, Ltd. in Chicago, Il. Since 2001 Anchor Advisors has been helping creative professional firms to grow, by helping them clarify their purpose, get the most from their people, keep their eye on key performance measures, and implement consistent processes. Brad is also the author of The Business Owner’s Champion: 6 Practices to Build your Nerve and your Business.