My favorite nerd joke goes like this: There are two types of people in the world. 1) Those who can extrapolate from incomplete data. [End of joke.] Pricing language services requires a lot of extrapolation. There isn’t much data out there, is there? And what pricing information is out there doesn’t always seem reliable.
There’s talk, lots of talk, of different markets. You hear about bulk markets and premium markets, and tons of markets in between, but here’s what only a handful of people are giving you: reliable, verified data.
The truth is, data helps. But there isn’t much of it to go around for your average language professional. Thus, many rely on hearsay or “going rates” from questionable sources. The thing is, data, though helpful can be replaced with another mystical element that is broadly available: knowledge. About what you say? Well, for starters: pricing.
See, the market economies in which we are all submerged are all subject to a simple basic rule or “law” that affects us (and our pricing goals) whether we realize it or not: the laws of supply and demand. They are everywhere, and they affect every single economic transaction we make as consumers and/or suppliers.
I know what you’re thinking. There is no pure market economy. Of course not! But that doesn’t mean that your pricing strategy shouldn’t take market economies into account.
There is no spoon
Remember the Matrix? There is no spoon! Seriously. There is no “translation industry” in the sense of a gigantic single monstrous entity a la Kafkian Castle that pulls us into an uncontrollable downward-trending vortex of miserable rates. Really, I promise, there is no spoon! The “industry” is, in actuality, a profession in which professional service providers cater to clients in a multiplicity of industries.
But don’t just take my word for it. Look at how the United Nations classifies translation in the International Standard Industrial Classification of All Economic Activities (or “ISIC” for short). You guessed it! As a “specialized professional, scientific and technical activity [which] requires a high degree of training and makes specialized knowledge and skills available to user.”
We, language professionals, provide a professional service to every single industry we can think of: automobile industry, food industry, science industry, etc. You name it, someone’s translating in it.
There are, however, markets. Those markets have segments. Those market segments have niches. We can play in those niches and segments and markets. And the better we are at playing the game, the better the chances of upping our prices.
The Law of the Land is Supply and Demand
There is a basic economic law you need to remember: low demand + high supply = low price. Alternatively, high demand + low supply = high price. Imagine that you are a Generalist Spanish-English translator who lives in the American Continent. Guess what? There are millions of bilinguals claiming to be translators in that language combination on this side of the world willing to take on whatever translation job might come their way. Supply exceeds demand. Rates will be low.
But imagine you change a single variable in that equation: you specialize. Perhaps you choose to specialize in something that speaks to an industry as a whole (e.g. legal or medical translation). Supply will still far exceed demand and rates will still be low. Now imagine you manage to narrow down that specialty by focusing on a smaller market segment within the industry. For example, you may choose to specialize in Legal Tech. Violá, now you’re not competing with millions, you’re competing with tens of thousands.
Imagine you zero in even more. You don’t just specialize in Legal Tech, you narrow your specialty even further to Data and Contract Analytics, and focus all your marketing efforts on start-ups providing Data and Contract Analytics services to Law Firms. Guess what? You’re now competing with fewer people in an industry with high demand.
Pricing Requires Strategy
So, you found your specialty and target clients. Now you need to know how much to charge them. Your price is going to depend on several additional factors:
1) How clients buy services.
2) The impact of price on profit.
3) How you pitch your work.
4) How you negotiate your price.
5) What pricing tactics you use.
6) If you played all your cards right, how you justify higher prices.
There are three generic pricing strategies for professional services (recommended reading: Porter, M.E. (1979). ‘How competitive forces shape strategy.” Harvard Business Review. March.):
1) Cost-leadership: which basically boils down to competing on price. These guys tell their clients one thing only: we’re cheaper.
2) Client-driving pricing: or letting your clients dictate your prices.
3) Competition-driven pricing: or market-driven pricing, where you compete with professional service providers who are seen as pretty much equivalent to you and where you’re going to work really hard to justify your fees at higher prices. Unless you’re hyper-specialized in something only very few people in the world can do (like, I dunno, rocket science!), this is where you most likely are if you work with direct clients or where you want to be if that’s what you aspire to.
Even within competition-driven pricing, there are those who will try to use cost leadership strategies. Chances are, they will fail. Why? Because, as Kevin Doolan put it, “In almost every area of personal life, you will recognize that more expensive choices are usually much better quality. However, when it comes to addressing clients, often service firms not only say that they are better than the competition, but they also undercut them on price. Actually, if you were better, would you need to undercut on price?”
Two more effective techniques are differentiation and niche pricing. Differentiation boils down to being aligned with the market but higher. It does not rely on making the claim that you provide high quality. Instead, it relies on your ability to sell your service as you would a bottle of fine wine. There is a good reason the Chateau Lafite 1787 costs what it does and it’s not just because it’s ancient!
I know, language services are services and not goods. But put yourself in the shoes of buyers. Do buyers really always go for cheaper or are they willing to pay more when they perceive the product to be better? If the answer were no, there would be no such thing as First Class tickets on airlines, no such hotel as the Hotel Connaught, no Constance Moofushi resorts, no fancy law firms, no exclusive Wall Street brokers…
The other alternative to differentiation is niche pricing. Niche service providers are basically telling their clients “we understand your wants better than our competitors and have tailored our services to better meet those needs.” Like services priced through differentiated pricing strategies, niche service providers also cost more because they bring better results.
Overwhelmed? Don’t be. Bringing this down to Earth and finding ways to apply these strategies to language services is not that hard. It takes research, practice, and quite a bit of work. But going from the theoretical principles described above to developing a strategy that works for you is a reasonable and achievable goal. It’s more than I can explain in a single post though. So, instead, I’d like to invite you to join Nicole and me in our free pricing webinar on June 8. Click here for more info.
Questions? Comments? We’d love to hear from you.