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.
"The first thing to do is identify the benefits your service offers to customers, and attribute a value to each of those benefits," stresses John Gammon, director of Hawkshead Management Consultants.
"Conduct some simple market research by looking online or in your local directory to find out who else is offering what you provide and for how much," advises Gammon.
If you find that your current or projected prices are higher, 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 direct and indirect costs when supplying your services, including labour, training costs, overheads and additionals such as marketing," Gammon explains. "Then 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.
"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," Gammon points out.
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?
Get feedback on your own service standards, too, to see how you compare with the market. "The best time is immediately after you've provided your service, while it is fresh in peoples' minds," suggests Gammon. "A good, simple questionnaire works well."
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.
"It's worth offering extra value at the time of a price increase, so customers don't feel like they are being conned," stresses Gammon. "And consider trialling your price changes to see how they are received.
"You should be thinking about pricing every six months. It's also important to have some kind of plan, and your pricing should be consistent with this," he concludes.