Setting the right price for your services is a major challenge for many self-employed professionals. It’s also one of the most important obstacles to tackle, because it directly affects your bottom line.
This article kicks off a series on How to Price Your Services. Here are links to the other articles:
- 4 Best Practices for Pricing Your Services Right
- How To Set the Right Prices Using Customer-Driven Pricing
- 6 Pricing Strategies That Will Immediately Boost Your Sales
4 Best Practices for Pricing Your Services
1. Initial Research: Know Your Audience and Market
Before setting your prices, you need to understand two key factors: your target audience and the market.
The first step here is to develop your customer profile. This will help you identify:
- Their problems.
- Their shopping habits.
- Their attitudes towards money.
- What they value.
Your goal is to position your product or service as uniquely valuable in solving the problems your potential customers are struggling with.
Once your customer profile is ready, your next move is to study the market. Identify your competition. Get to know them and analyze products and services they’re selling that are similar to yours. This will help you understand how much potential customers are willing to pay.
Finally, use the information gained from your research to position your offer accordingly.
2. Cost Pricing: Ensuring Profitability
The most basic pricing tactic is called cost pricing. Calculate how much it costs to create and deliver the product or service and then set a price that helps you achieve your desired profit margin.
While this ensures profitability, it’s not the most strategic approach since it focuses on the product or service, and not the market.
It’s important to know your cost price. However, the right price is more about perceived value, not the actual cost. This is why you can find similar services having different costs.
For example, and experienced Leadership Coach who is also an acclaimed author and speaker can charge thousands of dollars for a coaching session. Yet, another Leadership Coach who may have more credentials, can only charge a fraction of that fee.
This is because the perceived value of the Coach who is an author and speaker is much higher than that of the one who is not. And yet, the latter may have better and longer lasting results than the former.
Similarly, an experienced professional with testimonials from happy clients is able to charge higher fees than one who has less experience.
Here are some tips on how to ask for testimonials from clients using the same process I’ve used for years.
Luckily, most self-employed professionals do not have high input costs unless you create products, if you develop materials to accompany your services, or if you travel extensively to work with clients.
3. Competitive Pricing: Undercut the Competition
Having accurate and recent insights into your competition and customers can help you set a competitive price. One common strategy in the service industry is to undercut the competition and offer a cheaper alternative. This will give you a lower-price advantage that will draw away unsatisfied customers from your competitors.
However, simply being the cheapest option isn’t enough and it may also work against you at times. Also, if low price is your only selling point, a competitor willing to take a loss can undercut you and steal your customers. So it’s not enough to be the cheapest option.
Service-based businesses use this strategy a lot and it can lead to unhealthy competition. If you choose to undercut the competition, boost your chances by emphasizing the unique value of your offer. This goes a long way in making you stand out in the eyes of the potential customers.
4. Premium Pricing: Positioning for Higher Value
Alternatively, you can use my favourite pricing strategy to price your product or service slightly above the competition’s. To do this successfully, position your product as offering something more. Your branding should highlight it as a luxury item or one with enhanced features.
You can justify higher prices by:
- Emphasizing unique features or customization options that competitors lack.
- Laser-targeting your market by being more specific. Focus on a specific market segment, and tailor your marketing to suit the needs of this audience.
- Adding urgency to your marketing. Limit the number of units or spaces available or set a cut-off date for orders. Limited availability can make people perceive your product or service as rare and valuable, encouraging them to pay extra.
Pricing your services or products in this way ensures that you attract high-fee clients. This also means that you work with less people and make more money. From experience, I’ve also learned that high-fee clients are generally easier to work with than low-fee clients. More on that in another article…
Start Early: Research and Plan
Effective pricing is key to business success. You can boost your profitability by understanding your audience, analyzing the market, and strategically setting your prices.
Begin researching your pricing early, even during the product development stage. Use the data you get about the market and your customers to set a price they’ll be willing to pay.
The decision to buy often takes longer than expected, so don’t leave pricing your services to the end of your marketing or product development. Find out what your potential customers think your product or service is worth before setting the price.
Want to learn more about setting the right price for your services?
My e-course, Profitable Pricing for Self-Employed Professionals, covers everything you need to know about pricing your services so that you achieve your business goals.
Click here to find out more and sign up for the course.
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