Five Considerations when Pricing your Services

Do you ever wonder why airline ticket prices constantly change leading up to a flight? It’s a supply and demand game! A fancy algorithm (plus hard working analysts) view the current seats available vs. a number of factors: cost, competition, and expected demand for last minute purchases.

Brent actually managed the Europe revenue management for Delta! While service based businesses aren’t exactly the same as pricing airline tickets, he did learn practical tips that are helpful for every business!

Here’s Brent’s 5 tips for pricing your services:

One of the biggest mistakes you can make, as a service providing entrepreneur, is under-valuing what you’re providing to customers. Without a physical product, it can be difficult to know what to charge. Never forget that your time is money and your services add incremental value to your customers.

5 Tips to Pricing your Services

1) Understand your Cost

Time to pull out the calculators. Your goal? Understand the minimum you could price your services and reach break-even. We do NOT recommend pricing your services at minimum cost (you should always have profit margin in your business), BUT this will give you knowledge into understanding your cost per hour.

Put it to Practice: the Solo Entrepreneur

If you spend $2,500 per month (including salaries) and you plan to work 80 hours in a month WITH clients (20 hours per week), charging $15.63 would make you break-even. Note: every business has “admin” time and the price you charge per hour needs to cover this. And let’s be honest, you might not have a fully booked schedule if you freelance so do not set your prices here.

2) Reaching Targets

A better starting point is to consider how much money you want to make.  If you have a clear goal in mind, you can back into how much you need to charge for your services or per hour to reach that goal.

Put it to Practice

If you want to make $5,000 per month and expect to work 160 hours per month, then you would price your services at $31.25. Again, you should consider that you may not be busy every hour of the workweek and determine how many billable hours you actually expect.

3) Create a Competitive Analysis

Keep up with the Jones'! Airline pricing is an industry where looking at competitors guides market price for certain routes. If United offers tickets from NYC to Tampa for $100, you better believe Delta won’t charge $999!

Research competitors in your industry and determine what is “standard.” While you don’t have to match exactly, you’ll get a good idea of the prices customers are willing to pay.

Put it to Practice: the Competitive Edge

Find at least 2 or 3 competitors serving the same market with similar offerings. Are your prices in the same vicinity or is your pricing vastly different?  If there is a difference, consider what could drive that difference? Are you offering more or less value?

4) Review Supply / Demand

The most important consideration when establishing prices!

Are people readily paying the prices you’re putting out or are you struggling to close sales? If you’re so busy you don’t have enough hours in the day, that’s a good indication you can increase prices to customers.

If you’re on the other side of the spectrum, it’s probably one of two issues:

• You have a marketing / sales issue and are not in front of the audience who IS willing to pay your prices; or,

• Your pricing is too high.

Put it to Practice: Tweaking the Recipe

You set your price at $40 per week and are consistently booked.  Consider raising prices 15%-30% and see how it impacts demand. If demand tapers off, adjust prices down as needed until you find the right equilibrium to work the desired hours you want and optimize your revenue potential.

Don’t like certain customers or no longer enjoy selling a certain service? Raise your prices! That way, you’ll naturally “weed” out products or customers that no longer align with your vision.

5) Understand your Value Proposition

What makes you unique?

If you have an expertise, education or experience that someone else cannot easily replicate, that is VALUABLE. Your unique gift adds value to the customer. Whether that’s stellar customer service, money-back guarantees, successful results, or something else entirely, your service has value because it makes your customer’s life better.

We hear this often: “I feel dirty charging so much for my services. My creativity and knowledge isn’t something I can easily put a value on.”

The reality is… humans willingly spend money on things that make their life better. Your service does just that. Whether you allow them to see themselves in a new light (photographers), create a logo that lasts decades (graphic designers), or get them over the hurdles of starting a business (business coaches), you are enabling this person to do something they never dreamt possible. Yet you made it happen!

Put it to Practice: Quantify your Worth

If you are doing something that differentiates you from everyone else in your area, that is valuable and should be captured in your pricing.  Understand the value you provide to your clients and set your prices accordingly if your demand is strong. Never feel bad charging a premium for your expertise, you’ve worked hard for it.