Pricing is always a big question for many service providers as it is sensitive to discuss and hard to measure clearly. Which level is too high for your customers? Which level is too low for your profit? Which can satisfy both? Unlike goods, services normally do not have the exact amount of material or supply to calculate the cost in detail. It is quite more complex. Following are some tips on how to better set the prices for your services.
Control cost
The main fundamental when pricing any service or goods is the cost of production. There are two types of cost: fixed and variable. Fix cost always exist whether you produce much or little, while variable cost, as its name, varies when the amount of services changes (labour and time). You need to fully control the monthly costs of each service to set a price level that at least covers all those costs. Then try to cut down some redundant ones if possible to increase the amount of profit. Software like Xero (https://www.xero.com/) is commonly used to manage funds and maximise income.
Customer’s evaluation
Costs can only be used for defining minimum price, finding out your service’s perceived value is what brings back more money. Sometimes clients are willing to pay more than the time value of your service. The point is how they evaluate your service’s value and ensure that you can make use of that service. Again, what you offer clients is not time or labour, you offer results that they want to have and are willing to pay for.
For example, your service is advertising. It costs you 10 hours and one employee to complete an advertising pack for a customer’s product. Normally, you only have to pay a salary of $10 for those 10 hours of that employee. However, you find out that your client expects to raise his/her profit by $100 thanks to your advertising pack. Do you charge him/her $10 or $50?
Valuing your service’s perceived value is really important when determining the price. Try to think as if you were your clients and confidently offer the price.
Market positioning
The price level is an aspect that people look at when assessing a business position. High price often brings back a good quality impression, while low-price service may be treated as a low-quality one. However, it is not that simple. You can not set a very high price when only offering a normal quality service. It is essential to measure market demand for your service. The price needs to be suitable for your target customer’s ability to afford it. In contrast, do not set a quite low price just to lure more customers as it can set a perception of low quality.
Competitor’s price
If you are not a monopoly provider, keeping an eye on competitors’ strategies is always important. Look for any information you can get like their target market segment, their marketing methods, their discount strategy and of course their price. Nevertheless, instead of competing on the price level, try to offer better quality or unique value at the same price. People nowadays tend to look for a special and high-quality service or good rather than a low price but a normal one.
Improve perceived value
When clients buy your service, they also seek experience. You offer them a better experience, and they are willing to pay you more. Some simple ways to increase the value of your service:
– Deliver before due
– Attach reports and evaluation form
– Provide customer-only privilege
– Show your milestones
– Offer a professional onboarding process
– Offer referrals and introduction
It is also helpful to try to offer something new and analyse the market’s reaction so that you can determine what factors can raise your costs or profit.
It is always hard to get started with many things to consider. Understanding your clients and try not to overestimate or underestimate yourself is not simple. However, by doing things firmly step by step and you will have the confidence to set your own price.
At Black Arrow, we have designed a business coaching programme to help our clients achieve the deserving value of their services. If you would like our help, please do feel free to drop a message.
