The Ultimate Guide to Repricing Your ServicesPosted by Factor Funding Co. on June 9, 2016
Every business owner knows that pricing can make or break a company. The price of a product or service tells consumers what level of quality to expect, how you compare with competitors, and the value you place on your own services. Pricing too low can put you below your bottom line, while pricing too high can scare business away. Repricing your services may be the best way to improve business, but you must first understand the basic rules of pricing.
Using Value Factors to Price Your Services
The best way to price your services is to size yourself up to the competition. Do your homework within your industry to find out what competitors are charging for the same or similar services. You can use your competitor’s prices as a jumping off point, but it should not be the end-all-be-all. Your competitors aren’t you, no matter how similar their services may be.
Do you have more years of experience? Do you offer something competitors don’t? These factors can give you an edge and allow you to charge more than competitors and still attract customers. If you can back up your claim of being “the best” in your industry, by all means charge more than other companies. If you’re a startup and don’t yet have a reputation in your industry, you may want to price toward the lower end of the spectrum.
Undercharging for your services can be one of the most damaging things you can do. Not only does undercharging result in less profitability, but it also labels services as “cheap” or “inexperienced.” Savvy customers will likely pay slightly more for the same services you offer since they’re aware of what the market value of the service should be. Many industries warn consumers against businesses that charge too little, since these enterprises may be scammers.
As you gain experience and the marketplace changes, you’ll have to change your prices from time to time. It’s better to charge what you believe the value of your services deserve than to undersell yourself to beat the competition. Customers will pay more for your services if you can prove they’re getting a better value, if not a better cost. When it comes to achieving long-term customer loyalty, it’s value, not cost, that matters.
How to Know if the Price Is Right
Unfortunately, there’s no magic formula to come up with the perfect pricing. However, a company can come to an accurate bottom line with a few simple tips. If you’re experiencing difficulty securing conversions, attracting new customers, or retaining current customers, it may be time to reassess your pricing.
If you’re a professional who offers a service, you can offer either by-the-hour pricing or a project flat fee. Clients tend to prefer flat fees so they know what the total will be before committing. If you’ve been charging an hourly fee, consider changing your rates to a flat fee with extra costs if the service extends beyond a certain preset limit. Try out a new approach for a few months, and see if it boosts business.
Determining how much your time is worth can be the most difficult aspect of pricing your work. One tip is to come up with how much you wish to make per year. There’s about 2,000 hours in a work year. Take the number you wish to earn—let’s say $50,000 per year—and divide it by 2,000. In this example, you would need to charge $25 per hour to meet your desired income. Then, calculate the costs of running your business, such as cost of supplies, electricity, internet, etc., and make sure you still make $25 per hour after subtracting these expenses.
If you need to reprice your services to improve business, it’s important to keep your current customers in mind. You don’t want to lose large clients during a repricing effort. Consider grandfathering existing clients in and continuing their services at the same price or offering them special discounts on top of your new price. Packaging is everything—how you present your price change to customers can mean the difference between a last-ditch effort to boost profit or a company reassessing the value of what it offers customers.