How to Establish Service Price
Set your service price at the wrong level and your business could be in trouble. Too low and you'll struggle to make a good living; too high and you'll put off potential buyers. When setting a price, you have to think about how the service benefits the customer and reflect the value of those benefits in your offering. Ultimately, whether you're selling services or physical products, you need to ensure that you're making a reasonable profit.
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Instructions
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Setting a Basic Price
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Calculate all of the costs involved in providing your service. For example, if you offer writing services, then your costs may involve electricity usage, office space rental and Internet fees in addition to your time and skills. If you offer consulting services, you may need to factor in travel costs, venue hire or other related costs.
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Add all of your costs together to determine the monthly expense involved in running your service business. This is the lowest amount you need to make every month. Multiply this amount by twelve to identify the minimum figure you need per year for the service to break even.
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Estimate the time you need to complete one service offering. For example, say you offer a three-day computer training service that takes two days to prepare. Assuming that you can service three clients per month, you would divide your monthly expenses by three to determine your absolute minimum per-customer service price. If you are only able to service two clients per month, adjust your per-customer fee accordingly.
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Decide whether to charge per hour or per project. If your service is a set package with easily defined time scales, consider using a per-project rate. Consider hourly or day rates if you're offering onsite consultancy or similar services.
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Compare your pricing list to those of your competitors. Visit their websites and see what information is available. Contact a few companies to inquire about pricing if their costs aren't easily visible. Your aim isn't necessarily to copy their pricing structure; however, it helps to see what the market will currently bear.
Adjusting Your Pricing as Needed
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Write down all of the ways that your service benefits your client. If your service only adds marginal benefit to their sales or performance, then you may struggle to attract high rates. However, if you find that your input adds significantly to a client's bottom line, then reflect that benefit in higher costs.
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Consider the scarcity of your service. Can clients easily find a similar service elsewhere? If so, then you may be forced to compete on price. However, if your service is based on hard-to-acquire skills or similarly scarce qualities, set your prices higher to reflect this exclusivity as compared to other vendors.
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Set your service price at a level that fits with your current skills, market scarcity and competition. If you offer a rare and exclusive service as good as or better than your competitors, pitch your services at the high end of their overall price ranges. If you're new to the market and lacking the skills of some competitors, try setting your price closer to an average rate.
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Evaluate the amount of current demand for your service after setting your pricing list. Do you have a full book of existing clients and more people trying to pay you for work? If so, consider raising your prices. If you're struggling to get work, particularly if prospects are inquiring and then not converting, your prices may be too high.
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Tips & Warnings
Consider offering some basic services for a lower price. These may act as "loss leaders," or ways of attracting customers with low-priced services with a view to offering them higher-priced services in the future.
Don't assume that low prices always attract more customers. Some people mistrust very low prices or equate them with low quality.
References
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