My dad grew up in Zimbabwe, and has a great saying: "if you pay peanuts, then you can expect monkeys." Now, don't get me wrong - I love monkeys, and they are incredibly intelligent animals. That said, the saying nicely illustrates the challenge with pricing your service - price too low, and your customers perceive that you are not very good at what you do.Products are usually a little bit easier: when you're selling a product like a banana, you know that you are going to eat it, and when you eat it, you'll have food in your belly. It's pretty simple, and most bananas are pretty much the same in terms of taste and quality. This means that pricing a banana can be based on simple economic factors like supply and demand.
Services, on the other hand, are much more complicated. Often the customer doesn't know what you are going to get, and it's hard to know whether you're buying "the best" or "the worst" because there are few benchmarks available. That's why pricing is so critical. You don't want to price yourself out of the market, but at the same time, if you price yourself too low, you automatically create an assumption in your customers' mind that you are not as good as higher-priced professionals.
Think back to the concept of supply and demand: the higher the demand, the lower the supply and the higher the price. Thus, someone with higher fees is perceived to be in high demand and, thus, the human brain deducts, must be really good.
I'm not saying that service professionals should over-charge their clients, but it is really important to remember how critical pricing is when positioning yourself.
Let me know if you have any experiences with this, either as a consumer or in business.
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