Things to Consider When Determining the Price for Your Services

If you are a first-time entrepreneur or small business owner, Congratulations! You have just stepped onto the next exciting – and, for many people, envious – rung of your life story by becoming your boss. No more working under and for somebody else! Now, you get to put your days and sincere efforts into building your business.

But after the jubilation comes the all-important and very confusing question: how does one put a price tag on one’s services?

Pricing a product is one thing, but pricing your services is a different ballgame. How do you calculate and price something intangible, such as your expertise, skill, and time?

There are a few ways to do this initially, and as you keep working and growing, you can review and revise these steps to better suit your business needs. The first thing to understand is that pricing your services is divided into three stages:

1. Calculating Costs
2. Understanding Your Value
3. Pricing Strategies

Let’s understand each one in detail.

Calculating Costs

These include the cost you incur for making your services available in the first place, including rent for the office space, utility bills, office stationery supplies, advertising costs, etc. If you provide a service that needs special permissions and licenses or any software you have to buy a subscription to, you should also add that cost. All asset costs, like a laptop, office furniture, equipment, or subscription, you incurred before starting your small business must be recovered over time by adding a certain percentage of that cost to your pricing.

And if you need to travel for work, fuel costs will also be added to your service pricing. If you provide a service that employs other people, like construction, you must include their salaries in the pricing.

Understanding Your Value

Apart from the above-given costs, you must put a monetary value on your knowledge and expertise about the service you provide, not to mention the time you spend on the job. Unlike pricing for products that have fixed prices based on their making costs and margins, two different small business owners providing the same service can have different charges, depending on their skill and expertise. So, this needs to be given some serious thought. How good are you at the job? Are you the only expert or service provider who can do it? If not, how much do your competitors charge?

Answer all these questions honestly and then assign a dollar value to each answer to determine your price. The more niche the service, the higher the premium it can command. Remember, the price should also be something buyers are willing to pay. So try balancing your pricing with your efforts, the value provided to the client, and the client’s buying power.  

Pricing Strategies

You can choose from various pricing formats depending on the kind of service you provide and the clientele you serve. Is your work something that has monthly deliveries? Or does it only take a few hours or days to do it? You can either charge on an hourly basis or ask for a fixed amount on a per-project basis. You could provide some services on a monthly fixed retainer fee and upgrade if required. You can also start with different package deals – a low-cost package for basic services and a higher-priced one for specialized jobs. There is no hard and fast rule for you to stick to one strategy. You can have multiple pricing strategies for different clients based on the work requirements.

While these are the general factors you should consider when setting a price for your services, you should also consider other factors. 

What is your financial aim or desired income? 

In other words, ensure you earn enough to cover your expenses and make a reasonable profit. Many new business owners often fall into the trap of offering their services at a discount to attract more customers. However, this can prove counterproductive in the long run. It will make it difficult to make ends meet and even more difficult to raise prices in the future, as your customers will be used to getting services at cheaper rates by then.

Hence, it is essential to value your skills and not hesitate to ask for any effort that goes into doing a thorough and good job.

How much does your competition charge?

While you should not short-sell yourself, you should also consider the prevalent market rates. If you specialize in a rare service that requires special training and knowledge, you might be able to charge higher. But if many others provide the same service as you in your neighbourhood, you will have to try to match their rates as much as possible to make yourself more accessible. 

But as and when you upgrade your offerings, you can upgrade your pricing. You can upsell your services and give clients a reason to stick with you even at increased rates, as they will get a better return for their money.

Staying at the top of your game is crucial to maintaining a consistent flow of jobs, orders and customers.

When it comes to providing services, there is no one-size-fits-all formula. Each small business owner has his or her own set of skills and quality of workmanship. Also, each locality or market has its demand, preferences and rates. Making the best of these market conditions and giving the best possible service at the most competitive prices – but without compromising your profits – is the key to success.

Seeking guidance from a business consultant could be a significant first step. They are skilled at analyzing and interpreting markets and customer preferences. They can give you valuable insights on an optimal pricing strategy for your small business to stay competitive and profitable while keeping the scope for further expansion and growth.

Contact KSSP Partners LLP in Markham to Help You with Pricing and Other Business Strategies  

Business consultants can help you answer questions in a structured manner and make informed decisions based on data. At KSSP Partners LLP, our accountants and business consultants can provide services such as pricing and finance strategies to help you build a sustainable, profitable and scalable business. To learn more about how KSSP Partners LLP can provide you with the best business consulting expertise, contact us online or by telephone at 289-554-5997.