knowing how to price your services can be the most important thing you can learn. If you don’t price them correctly you can potentially loose a lot of money and even go out of business. Also it’s important to have a clear pricing structure so your customers always know exactly what to expect in terms of payment and don’t get caught off guard. Depending on the services you offer making a price table can be difficult, but it is essential you figure this out earlier rather than later.
Don’t compete by lowering your prices.
This is an extremely common mistake many people make when starting out. They figure they need to be cheaper than their competition to attract new clients. Yes, this is likely to work and you will certainly see results from doing this, but in the long run you are setting yourself up for failure. The problem here is you are racing to the bottom, you lower your prices and eventually there is always someone willing to do it for cheaper, so you’ll have to lower prices again to compete with them, and so the spiral goes until there is nothing left to be made.
If you ask other business owner you may hear them say the cheaper clients are always the more demanding ones. To an extent this is true, when someone calls around looking for the cheapest service provider or looking to buy the cheapest product, they aren’t thinking I want something cheap. They are simply trying to get the most value for their money. For you as a provider of such goods or services, this can be problematic as they will expect a good level of service regardless if you are giving them a discount.
Consider this example. If you charge $100 to do whatever service you offer and you can normally take care of 8 clients a day you grossed $800 for a days work. If you take a job at $50 expecting you’ll knock it out in half the time and move on with your day, you’ll find the client will be on top of you to fix every little issue until the job is done correctly and you may think this is a picky client, but in reality they simply expect you to give them the same level of time and attention as your $100 client. It’s likely you that are making mistakes rushing to get out and move onto the next client because that’s what you need to do to gross your $800 for the day. And knowing you need to rush the job to make money on it also ads a level of stress you wouldn’t normally deal with. So it makes the situation worse, you are now stressed, upset the client is expecting a high level of service that’s taking too long, and the client is upset that they need to keep pointing out things for you to complete or fix or do correctly. So you’re in a loose loose situation in which you likely won’t get any recommendations or referrals from the client.
Use value based not time based pricing
It’s not uncommon for first time business owners to think about pricing their work hourly. After all, at just about every job you’ve worked you likely were paid based on the number of hours you worked. The problem is that when you price your services hourly you are leaving out the value your experience and knowledge brings to the table. I went to 4 years of college and learned a valuable skill set. A doctor or dentist or any other skilled professional likely did something similar, so where does that time get added to your service? Also, you are cheating yourself and leaving money on the table due to your efficiency. Let me cover a scenario with you, using a tree trimming business. You charge $100 per hour to trim trees and it takes you 3 hours going up and down a ladder and moving it around until the tree is completely trimmed so you bill $300. A year later after you spend $18000 on a lift that allows you to do the same job in half the time making you more efficient and allowing you to trim more trees per day, you go back to the same house and they will expect to pay only $150 because it took you an hour and a half. The home owner will not care that you dropped money on new equipment, they only care that you told them you charged $100/hour and it took x amount of time. This may seem unreasonable to you, but it happens. Instead if the client is under the impression the cost to trim that tree is $300 then they will expect to pay the same the next time around.
Don’t hide prices
You know what your prices are, so don’t hide them. If you display your prices clearly on your website or wherever you advertise you are already setting up your marketing funnel. I’ll cover this in more detail in another post, but basically you cut back on the number of phone calls coming in asking about pricing. Being busy on the phone is not a sign of being successful, just a sign of being busy. If you spend 3 hours of your day answering calls about your prices that’s 3 hours you aren’t dedicating to you work, your clients, yourself, or your business. Displaying pricing will ensure clients that don’t have the budget to pay for your services aren’t wasting your time asking about it.
If your business pricing is too complicated to add to a website, you can still add a range or starting at prices. Construction for example is difficult to do straight pricing for since every job is unique, but you can still display something along the lines of Kitchen remodel starting at $15,000 for 10×10 ft. kitchens. Customers will understand this can go up depending on the type of cabinets they choose and type of work being completed, but it will at least give them a starting point and if they don’t have at least the 15 thousand they can save more money before calling and taking up your time.
Plan a pricing model that makes sense to you.
This is one of those areas of your business plan you really want to plan out to the future and not just base it on your current situation. Of course you can always change prices, however if you change them too often or by too much you can scare your customers away. Before settling for a price structure, do the math and see if it aligns with your goals. If you price it so you make money but your business isn’t making much of a profit, this means when you hire a second person, the work they do will pay their salary and you’ll end up with little else left. Also consider you can’t make more time, so if you’re planning on purchasing a home, a new car eventually or whatever else your personal plans are, you may decide you want or need to make 8 or 10 thousand per month, or more. So based on your current pricing, and the amount of hours in a day, do those numbers add up without you having to work 16 hour days? If not, then adjust your prices so the math ads up. Don’t worry if the prices seem excessive to you, remember prices are relevant. What seems expensive to you may seem reasonable to someone else. Not to mention, it’s easier to have higher prices and do sales, or specials than it is to raise prices once someone is expecting to pay less.