How to Price Your Services
How to Price Your Services
Pricing your services is a challenge for many small business owners, mainly, I think, because there are multiple factors to consider when determining what to charge. Trying to define your “value” in terms of pricing is just one issue; there are other areas to consider, such as who your customer is, what benefits your service provides them, how distinctly or uniquely your service is positioned, and what other similar services are being sold for.
As you can see, it can be complicated.
How to price your services is something that entrepreneurs wonder about, and yet don’t know exactly how to find the answer. Sometimes, they’re guided to just pick a number that feels good. Or to price-test- where they give clients higher prices until the clients resist. Sometimes, they are asked to do math and figure out what they want to make per year divided by number of hours worked.
Some of these approaches have merit, with my favorites being a blend of practically looking at what you’d like to make each year, and then making sure that your resulting rate feels good.
In my experience as a consultant, it works best to have both an hourly billing rate, and a package/project rate. The hourly billing rate will save you when your clients want to purchase services ala-carte, or when they want to purchase your assistance for something that you customize for them. Package/project rates work well in cases where you have a set process and know about how long it will take to implement that for the client.
Typically, hourly rates when pricing services take into account the amount you want to earn, as well as some additional monies for overhead, marketing costs, and hours which unfilled. Project/package rates include those, as well as the costs of outsourcing the work (if applicable) and project management fees as well. Clients tend to like complete project rates because these help define the expected outcome and they know exactly how much they need to invest to make that outcome happen.
For consultants, project rates tend to have a bit more room than hourly rates. This is because each hour of work isn’t accounted for in the billing, and you’re charging for the final outcome more than the process.
In my business, I offer both kinds of pricing options. The hourly rate has also come in useful when I have to price new projects- especially if they are for things I’ve not before offered together in a package- the hourly billing gives me a baseline to start from.
As a consultant, it’s also important to have planned increases in your pricing- because each year, you are gaining experience, skills, and likely are providing more value to your clients. When considering how to price your services, also determine what your percent increase in fees will be year after year. You can also institute these increases just for new clients, but if you retain clients for years, it might be worthwhile to increase their rates as well. Nobody should work in 2017 for 2010 prices, just because the client has been with you since then.
But let’s say that you’re starting at the beginning, and wondering how to price your services from the beginning.
So here’s how I’d answer the question if asked about how to price your services.
* Who Is Your Customer? – The most important thing to bear in mind is exactly who your customer is. Who are they? What are they looking for? Do they normally purchase service(s) like yours? Do you know what they typically spend if they do?
* What Benefits Does Your Service Provide Them? – This is another important consideration, because if the benefits are worth a lot to your customer, you generally can charge more. Look at the biggest promises you can make with your service and determine how much those benefits would be worth. If you are selling to other businesses, try to frame how your services can help them make more money or create more time. Other great benefits for entrepreneurs are done-for-them services, and anything that can make them feel more confident or be more successful.
* Where Can You Provide Extra Value? – On top of the normal and obvious value that your service offers, what are the intangible benefits of this service? For example, does becoming your client give them early access to insider information in your industry? Do they get a price break on future offerings? These kind of intangible benefits can add to the value of your services and should be considered as you examine how to price your services.
* How Much Are Your Competitors Charging? – While you shouldn’t price to compete with competitors solely, it’s a good indicator of what your audience might be willing to pay. If someone has been in business for a long time, selling something like yours for a long time at a particular price, you can use that pricing as a benchmark for pricing your own services.
* What Type of Choice Can You Give Your Client? – If you can offer more than one version of a service (think Basic and Deluxe), you can actually offer a high and low choice at once. Often, giving your audience a choice can help you with pricing decisions by letting the consumer choose what works best.
* Will the Pricing Enable Potential Promotions? – If you want to leave room to offer incentives, discounts, price-breaks, or to reward for referrals, it’s wise to consider this when examining how to price your services. In these cases, pricing higher will give you more freedom to adjust the pricing for various promotions.
* Is This an Entry or Higher Level Service? – If you have other services than this one, try to figure out where it fits into your service funnel and price it accordingly. Generally, entry level services are priced differently than higher level or premium services.
When you price your services, you want to find the best balance between meeting your clients’ needs and satisfying your own.
Remember, “volume without profit is like eating soup with a fork. You keep busy but stay hungry.”
Keep this in mind when deciding how to price your services. You want to find the best balance between staying busy and being full.
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