It’s a new year and with a new year comes New Year’s resolutions. If you have creating and launching your business on this year’s bucket list, this post is for you. In this post we are taking a deep dive and outlining the 7 steps of pricing services for your service-based business.
Are you afraid to start your service-based business out of fear of what people will think about your prices? “You’re way too high!” “I can go to so-and-so and get the same thing!” “You want HOW much to preform XYZ?!”
I was there too and have heard it all. Just remember, you determine your price, not anyone else. So pick a price, stick to it, and be confident. Here are my steps to pricing your services to make yourself confident in your numbers.
Pricing services for your small business should involve a strategic approach and considers various factors. Below is my recommended formula for pricing your services:
Understand Your Costs for Pricing Services
Fist, calculate all your costs associated with delivering the service.
Review overhead costs including insurance, rent, utilities, loan payments, and any other indirect cost incurred in your business.
Review direct costs associated with clients. These could be subscription costs, required tech costs, contract labor, or any other expense that has a direct correlation with each new customer.
Define Profit Margin Before Pricing Your Services
Next, determine the profit margin you want to achieve. This is the amount you want to make on top of covering your costs.
A normal profit margin for a service business is around 30-50%.
Research Your Market to Determine the Pricing of Services
After you determine your ideal profit margin, conduct market research to understand what similar services are priced at in your industry and region. This will give you a benchmark or let you know if your service is a hot commodity!
Identify Your Unique Value Proposition (UVP) to Increase Your Pricing
This step is important to standing out in the crowd! Understand what makes your service unique and capitalize on it! If you provide additional value, you may be able to justify a high price for your services!
Examples of UVP: I offer customized weekly cash flow repots to my clients as we as end of month summaries that contain important financial data as well as comparative charts.
Consider Your Target Audience
Don’t forget to analyze the demographics and purchasing power of your target market. What are they willing to pay for your service or something similar?
Factor in Your Expertise
If you have unique skills, experience, or qualifications, factor these into your pricing! Clients often value expertise and are willing to pay more for it!
If you have an industry specific certification or education, that could set you apart from similar service providers.
Time and Effort
Finally, consider the time and effort required to deliver the service. Your hourly rate should reflect not only your costs but also the value of your time and expertise.
Once you go through the 7 steps above, you should have a good idea of what you need to charge and what you can reasonably charge for your services.
Don’t be afraid to experiment with your pricing! If you are overbooked, raise your price. If you are having lots of consultation calls, but no engagement, look at lowing prices if allowable. Not keeping as high of price margin you would like? Investigate how to cut costs, either direct or indirect.
As a business owner you must be fluent and adapt to changes that you see in your business. Having updated financials to review monthly confirms if you are hitting your target profit margin, or if you need to go back to the drawing board and make some changes.
Use my 7 steps and see how surprisingly easy it is to price your services!
Looking for more content for your small business? Head over here and check out my post on Bookkeeping Essentials!