Are you thinking of starting a service-based business? If so, you'll need to figure out how to set prices for your services.
There are a few things to consider when setting prices for your service-based business. You'll need to think about the cost of your time, the cost of materials, and any other overhead costs. You'll also want to make sure that your prices are competitive without overpricing yourself. Know what you are able to do and where you need improvement, and keep it in mind when considering your value to clients.
In this article, I'll give you some tips for setting prices for your service-based business.
What's your pricing strategy?
There are a few pricing strategies you can use for your service-based business. You can charge by the hour or by the project. You need to find a pricing strategy that works best for your business and your clients.
If you charge by the hour, make sure you communicate your hourly rate to your clients upfront. This will help them understand what they are paying for and how much they should expect to pay for your services.
If you charge by the project, give your clients a detailed estimate of the scope of work and the total cost before starting the project. This way, they know exactly what they are paying for and there are no surprises.
Note: It's important to factor into your pricing the value you bring to your client/s. You are offering them a service they themselves are unable or unwilling to do. That means you are offering a valuable service that requires you to stay educated and knowledgeable about what you do. Sometimes that means you are paying for courses in your 'spare' time to increase the value you bring to the table, which in turn increases your own business costs that you need to factor in.
How to determine your price point for your small business.
If you're running a service-based business, setting prices can be tricky. You want to charge enough to cover your costs and make a profit, but you don't want to price yourself out of the market. So, how do you determine what your price point should be?
There are a few things you'll need to take into account when setting prices for your services. First, you'll need to know your costs. This includes not only the cost of any materials or supplies you'll need, but also your overhead costs like rent or utilities. As well, factor in any other costs like business apps or website fees that you are paying for. Once you know your costs, you can start to think about what kind of profit margin you want to make. A good rule of thumb is to aim for a profit margin of 20-30%.
Next, you'll need to consider the going rate for services similar to yours. If you're significantly cheaper than the competition, potential customers may question the quality of your work. On the other hand, if you're too expensive, they may go elsewhere. Do some research on comparable businesses and prices to get an idea of where you should fall on the pricing spectrum.
Finally, don't forget that, as a service based provider, you will need to pay taxes, and that may mean keeping a certain percentage aside every time you get paid. Find out what that is for your province or state. Get in touch with an accountant if you aren't sure how to figure out your tax expenses.
Note: DON'T underestimate your business savvy and make your price something so low you can't live off your income.
What are the pros and cons of each pricing strategy?
There are a few different ways that you can price your services, and each has its own advantages and disadvantages.
Cost-plus pricing is probably the most straightforward approach, where you simply charge your customers enough to cover your costs, plus a reasonable profit margin. This ensures that you're not losing money on each sale, but it doesn't take into account what the market will bear or what your competitors are charging.
Value-based pricing is another option, where you charge what you believe your services are worth to the customer, regardless of your costs. This can be a more profitable approach, but it's more difficult to calculate what your services are actually worth.
Competition-based pricing is yet another possibility, where you base your prices on what your competitors are charging. This can be a good way to stay competitive, but you risk undercutting yourself if your competitor's prices are too low.
Ultimately, there is no one perfect way to price your services—it depends on your business, your costs, and what the market will bear. You'll have to experiment to find the pricing strategy that works best for you.
If you've finally decided on a set price for the service packages or hourly rate you are charging, leave them. If you are always adjusting your prices, it appears that you didn't do your research first. That said, you should change your pricing if inflation rates skyrocket and/or your costs to run your business increase. There are legit reasons for changing your service prices, and it's good form to give current clients either a) no price change or b) sufficient notice that they can decide if they wish to continue with your services.
If your client does decide to stop working with you, don't feel bad. That just means you are outside of their budget. This is something that happens often as a service provider.
Note: NEVER let a client tell you how much you are worth. Your prices are the way they are for a reason. If a potential client cannot afford your prices, then it's better to let them know before going forward. If you do choose to go forward, you are likely going to regret it later because they aren't fitting your current business goals and you will be doing more work for less profit.
Bottom line. You make the decision as to what your prices are. Once your prices are set, your prices are set.