Pricing a service can be trickier than pricing a product, which tends to be led by unit cost. Getting it right means valuing your time and expertise, and accurately weighing up customer perceptions, as Afsheen Latif discovers
There are many reasons why you might want to review your service prices - perhaps you have earned more qualifications or an official accreditation; maybe your overheads have increased, or you want to fund expansion of your business. Whichever it is, plan carefully before you settle on a new price for your offering.
You should start by identifying the benefits your service offers to customers, and attribute a value to each of those benefits.
Research your market
The next step is to conduct some simple market research. You might look online or in your local directory to find out who you are competing with, what they offer and for how much.
If you find that your current or projected prices are higher than that charged by your competitors, you risk losing custom to your rivals. This does not mean you should slash your prices, however - set them too low and customers might think that your service is inferior.
Calculate your costs
You then need to understand what it costs you to provide your service to customers. Calculate your direct and indirect costs when supplying your services, including labour, training costs, overheads and additionals such as marketing. You will need to decide to what extent these costs should be reflected in your pricing.
There are two basic pricing models to work from: cost-plus pricing, which involves adding a mark-up to your break-even costs; and value-based pricing, which takes into account the value of your service to your customers.
A value-based price reflects what a customer is willing to pay. You might have built up loyal custom, offer a higher quality service or be perceived to be better than your rivals.
Gather feedback on your prices
To get a sense of the market value of the service you provide, ask your customers what they are willing to pay, and why. Who provides the best service in your area? What do customers expect for their money? How much do they value qualifications and experience?
The best time to gather feedback on your service is immediately after you've provided it, while it is fresh in peoples' minds. A good, simple questionnaire works well. It is also possible to carry out simple surveys online. Customers may be more inclined to respond in an honest and open way to an online survey due to the anonymity it offers.
Set a price
Once you have assessed the value of your offer, you can put a price on it. You are likely to find, however, that customers will tolerate a price rise driven by inflation or interest rates, but not if it seems to come out of the blue.
Consider whether it's worth offering extra value at the time of a price increase, so customers don't feel like they are being conned. You could also consider trialling your price changes to see how they are received.
You should aim to review your pricing every six months. That way you can keep on top of market changes and amend prices to reflect your costs and changes within your marketplace. This will help avoid the situation where you are faced with having to make massive price hikes because your prices haven't been reviewed for ages.
It's also important to have some kind of pricing plan and strategy, and your pricing should be consistent with this.