For small business owners just starting out, or those who are 10 years in, one of the most difficult tasks is determining what to charge. This can be particularly true for service-based businesses where deliverables can be less tangible.
To achieve success in your venture, it’s critical to charge what you are worth. And, it’s more than simply deciding the right pricing method to use, but also understanding the value that you provide to your customers.
Identifying Your Value Proposition
Imposter syndrome is real. And for many small business owners, it can be easy to fall into the trap of undercharging because you feel your service isn’t worth a high price tag.
You may think to yourself:
- “If I charge more, no one will want to work with me.”
- “I don’t have enough experience to charge this price.”
- “My competitors aren’t charging this much.”
First things first, erase this negativity from your entrepreneurial mindset. Remember that you are offering more than a handyman service or simple haircut.
You are providing a skill that saves your clients time and frustration, making their lives easier, more enjoyable and even safer.
To grasp how customers feel about the service you provide, do this exercise:
Consider your ideal client, the one who appreciates the work that you do. For instance, if you’re an accountant, think of your client who thanks you for taking extra time to walk them through each page of their tax return.
Don’t harp on what you offer, but rather focus on the customer experience you provide and why it matters to your clients. Why did they (or would they) hire you? This will help you determine the perceived value your client has of your business.
While this thought process won’t magically produce a price to charge, it will help you understand the value of your service and give you the confidence to charge what you are worth. This exercise will also help you better articulate why someone should choose you over the competition.
In addition to understanding the value you provide at the moment, don’t forget to consider the amount of time and resources you put into learning or mastering your chosen craft. This should not be overlooked.
Your customers didn’t spend hours under sinks figuring out how to fix a leak in their plumbing, did they? No! They hired you for your experience and expertise.
Determining How You’re Going to Charge
Now that you understand your value, it’s time to set your price. If you aren’t sure where to start, it’s best to do some research to see what your competitors are charging for similar services. This will help you gauge what people are willing to pay for services such as dog-sitting or legal consultations.
Types of pricing methods
In conjunction with choosing what to charge, it’s important to determine how you are going to charge. Here are a few different pricing methods to choose from.
- Fixed or project pricing. If you have a standardized business, you can sell your service at a set price. For example, if you’re a dog groomer you may have fixed prices based on the size of a dog: small, medium or large. You can determine fixed pricing based on the costs of materials required to achieve the desired outcome and then set the price to make a reasonable profit. In addition, the perceived value of your service, such as your reputation, convenience and quality of work can allow you to add to that fixed price so you’re making what you’re worth.
- Hourly pricing. Many services can’t be standardized due to variables that are unpredictable. Let’s say you’re a legal professional. Hours for a particular case may vary based on its complexity. Many services charge based on time and materials. This is a useful pricing method for contractors. You can identify the cost of materials used for a kitchen remodel, then calculate an hourly rate to account for your time.
- Subscription. With the subscription method, customers pay a reoccurring rate, often monthly or weekly. Subscription methods work great for digital services, house cleaning or memberships such as a gym or personal training sessions.
Remember, pricing shouldn’t be static. If your business is a little more established, it’s key to know how much you’re making on a certain service so you can determine if it’s worth it for you. If not, adjust the pricing accordingly.
Proving Your Worth to Your Customers
Effectively communicating your pricing and value proposition is key to customer buy-in. As you first start out and pick up your first few customers, ensure that you are providing an exceptional customer experience each time. This will help you build a legion of adoring fans who can help market your business.
Did you know? 92% of consumers believe recommendations from friends and family over all forms of media and advertising.
Ask your customers for reviews to boost your credibility online. You can do this by sending a survey via email or SMS text after a completed service. In addition, you can send a custom review link right to your Google My Business so they can leave a review.
Reviews can help boost your authority and prove to a potential customer that you have a solid track record of superior service. Plus, it will help you stand out from your competition.
Pro Tip: When it comes to reviews, good or bad, it’s important to respond to each one. This shows potential customers that you care.
Stop Selling Yourself Short
When it comes to pricing your service-based business there are a lot of factors that you need to consider. From the value you provide your clients to the training and experience you’ve picked up along the way.
There isn’t a right or wrong answer. So, experiment with various prices and pricing methods. But above all, know your value and don’t sell yourself short.