Did you know that there are over 30 million small businesses in the United States? No matter how certain you are that you provide an exceptional service that goes above and beyond and you charge what it’s worth, worrying that clients will see the price as unreasonable is a common fear. We have put together this guide to help you come up with competitive pricing strategies.
Keep reading to make sure that you do not undercharge for your services but still feel confident that you are making what you are worth.
What Are Your Costs?
To ensure that you are not going to be in the negatives you want to first calculate how much it costs you to provide your services. Add up what it costs to make your product or provide your service and from that figure, you will be able to come up with pricing to make sure you are making a profit.
Keep in mind that costs will vary based on the type of business that you have. If you have a service-based business your costs will be different than product-based businesses. The same goes for subscription pricing strategies, it will also be a different cost.
Understanding the real cost of providing your services is going to play a major role in your final pricing. The two categories that you can break your costs into are direct costs and indirect costs. Add both of these costs together to know how much money you have to cover.
The direct costs are those expenses that go with providing your services such as direct labor, direct materials, and manufacturing suppliers. Your indirect costs are the expenses that are needed to run the business but are not specific to one job. Indirect costs include things like rent, utilities, insurance, equipment, indirect labor, marketing, maintenance, advertising, etc.
You want to know what your competitors are charging for similar products and services. You can figure out how much they are charging by checking out their website, emailing them, or calling. What they are charging is only a guideline to make sure that you are not way off on your own pricing.
You do not want to base your pricing only on what your competitors’ are doing but ignoring their pricing strategies will not help you break into the industry that you are competing in. If you choose to ignore what they are charging you will be left in the dark about what is happening in your own market.
You have to know what is happening in your market because you do not want to set a price that no one is willing to pay because it is dramatically higher than everyone else in the same niche.
It will not matter how much you charge if no one is willing to pay you. You have to see how customer’s are perceiving the value that you are giving them. In order to know this, you will have to know who your customers are.
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Collect information about your target customers by using a market study. Find out how much your customers are willing to pay and make notes of their family status, their occupation, their needs, and their income.
The better you get to know your customers the easier it will be to determine how valuable they see your services. Keep in mind that your client might not necessarily care about how much time you spend providing the service. They typically will base how much they spend off what their perceived value of the service and your expertise is in their eyes.
After analyzing your competitors and your own costs, you will have to choose the best pricing model for your business. You have options such as hourly rates, or flat fees also known as fixed rates.
Charging by the hour is popular because it ensures that the business is receiving the appropriate rate of return on the time and labor that is being invested. This hourly rate should be based on your expertise level and also your seniority. The longer you have been working in this niche the higher the hourly rate should be.
Do not forget to factor in computer services, clerical support, overhead expenses, and travel.
Customers tend to like fixed rates because they will know what to expect. They like having peace of mind that they won’t suddenly receive a bill for 50+ hours when they were expecting 10 hours of work. With a flat fee, you want to make sure that you are not getting the short end of the stick if a service takes you longer than expected to complete.
To come up with a flat fee you can multiply your hourly rate with the estimate of how many hours it will take to perform the service. This will give you a good idea of a fair fixed rate and to be safe you can add an hour or two extra in case you go over the time you are calculating.
Competitive Pricing Strategies for Your Business
An important thing to keep in mind is that you have a lot of flexibility when it comes to setting up your prices when you are the owner. Remember to use the competitive pricing strategies above to help you charge the right amount.
Pricing services are typically a bit more difficult than pricing products because you are not pinpointing the cost to a specific product but it’s not impossible. Make sure that you do not undervalue yourself and what you are worth.
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