Pricing your service based business

BUSINESSIDEAINSIGHT.COM|Mike Nesselbeck

Pricing the services is very important as you want to make sure you can cover all your expenses. You also want to make sure you’re not underpricing yourself and leaving money on the table. Or conversely, you’re overpricing your services and scaring away the potential market and target customers because your price is too expensive. It’s really important we focus and spend some time on how to price your service, ensuring you do it correctly so you don’t have to keep flip-flopping and changing your pricing down the road, as that will scare away your long-term customers.

Step 1: Competitor Analysis

The first step for pricing the services for your business is to conduct a competitor analysis. Now, this is the first step because we need to understand what is the competitive landscape, how much are they charging, what type of value they’re bringing to that target market and where they position themselves in relation to your side business. This will also give you a good understanding of the general baselines of where you need to price your services.

Charging higher than competitors

For instance, if you notice that your competitors are offering a lot less value, personalized service, etc. than what you offer. Well, you can consider charging a higher price point than your main competitors in that area because you know you’re offering more value, that personalized support, or whatever it is that’s really helping and going above and beyond what your customer’s expectations are.

Charging lower than competitors

Similarly, you want to make sure you’re not undercutting and underpricing yourself and leaving money on the table. If you’re only charging 100 to 200 dollars for your service, but your competitors are charging a thousand to two thousand dollars and only giving the similar level of value or less. Well, you know that you’re underpricing, and that you have a lot more room to increase and grow in your pricing. And conducting the competitor analysis will give you a good baseline so you know where to start.

Step 2: Estimating the Value You Bring

After you’ve conducted that competitor analysis, is to estimate the value you bring to your customer and target market. It’s really important you price your services off the value you bring and not off what it costs you to operate and run your business.

Why this approach is important

This is because people don’t actually care how much it takes to run your business. They only really care how much value they’re going to be getting out of the service they’re buying into. They don’t really care if you have one hundred-thousand-dollar marketing budget, what they care about is the results you’re getting them.

Step 3: Defining Some Price Levels

In step one, we were able to get a good benchmark of where we can price our services based on what our competitors are doing. This gave us a sort of a range and a place to start in knowing where to charge. In step two, we were able to sort down the value we bring and how we’re helping our customer and ultimately how that is going to turn into a price.

Higher Price Points: If we’re giving a

lot more value than our competitors are giving, we can really go above and beyond the benchmark and charge a justifiable higher price.

Lower Price Points: Similarly, if

you’re offering less value, you’ll need to understand you’ll have to charge a lower price than what your competitors are offering. Finalize Some Numbers: Write down some specific numbers that you think you’d pay for this service in exchange for the value that you’d get.

Step 4: Testing and Validating the Prices for the service

Once you’ve nailed down those price points that you think your customer would pay for your service. It’s now time to go and test and validate these price points in the market with our target market.

Getting Potential Customer Feedback

What we’ll have to do is round up three to 10 of our target customers and see what their willingness to pay is for these services and for the outcome and value they’d be getting. This usually takes the longest because getting in contact with these people, setting up a time to get on the phone or go for a coffee chat can be time-consuming, but it’s really worth your while. The last thing you want to do is launch your service with a price point that’s too high or too low and you’ll be either leaving money on the table or customers won’t be working with you due to your price.

This Helps In the Long-Run

Talking to your target market and understanding know how much they’re willing to pay and what they’re not willing to pay for will really help in the long run as you run your business. If you go to increase your prices down the road, you’ll know sort of the ceiling you’ll hit before you’ll need to really up that value you’re bringing or change the transformations etc.

Tips on pricing your services The Benefits of Niching Down

When you target very specific niche markets instead of, you know, the mass audiences you’re able to charge higher price points. This is because, generally, there’ll be fewer competitors in that area and there’ll be fewer options for those customers in order to buy from. You’ll also be able to offer a service that solves a very specific problem and adds a lot of value and transforms people’s lives, in a way that they couldn’t get from a general competitor. As those solutions are usually too general or too broad in order to fit into this specific scenario and niche that you’re in. If you nail down that niche and position yourself in that niche for that specific area, you’re generally able to charge higher prices than you would if you’re just a general average specific business.

Why Profit Margins Are Important

This is really important as you build and look to scale your service based business as if you want to hire someone to come in and perform those services so you can expand towards more clients or work on other pieces of your business, well making sure you’ve accounted for the hourly wage will allow you to have that profit margin at the end. So you’re not going to go broke running your side business if you need to hire someone.