Does Supply and Demand Apply to Professional Services?

I hope you don't mind but today I'm going to briefly recap a bit of Economics theory to do with Professional Services and value.

Some people think that the law of supply and demand applies to Professional Services.  It doesn't!  Demand will never exceed supply!  Who is booked solid every single day of the year?

No Professional Services Provider is going to keep supplying up to their full capacity in response to demand - A 40-hour week is less than 25% of full capacity!  Professionals don't restrict supply of themselves in order to force up prices.  They do it for their work-life balance, to retain their health, both physical and mental.  In any case, nirvana is to work fewer hours for higher fees; to work smarter, not harder!

“Nirvana is to work fewer hours for higher fees; to work smarter,
  not harder!”

Neither do they charge more in order to reduce demand.  If they charge more it is because customers value their services and are willing to pay more.  Ironically (if you still believe in supply and demand) charging higher fees often increases demand!

Agreed, to be on a demand curve, a customer has to be both willing and able to make a purchase.  However, a demand curve does not reflect how much the customer values the product, only how much of it they want to buy.  Because willingness depends on value, and because the maximum the customer is prepared to pay is unaffected by the cost of production, a supply curve does not cause prices to be paid.  You can waste a lot of time and money producing things customers don't want.

Economists also talk about 'price elasticity' - How much demand or supply will change when prices change.  The theory of elasticity lumps customers together.  What is needed in Professional Services is segmentation by subjective value; segmentation into different value propositions.

If you agree with these thoughts and would like to find out more about pricing your services on the value your customers get out of them so you can make sales without selling and get paid what you're worth, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.

Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk