Small business owners, entrepreneurs, and freelancers share similar challenges when it comes to the first steps needed to get a business off the ground. They have to learn how to find customers, how to promote their services, and yes, how to price those services in a way that’s fair for the customer and the business.
Most well-established businesses have a series of procedures and tools that help them deal with pricing new services or improving sales on a new market segment. However, these procedures are based on previous experiences and a bit of trial and error, plus specific pricing methods that include all the processes required to keep the business going. Still, a new business or a freelancer will have to start from scratch.
So, if you are in the position of pricing your services but don’t really know where to start, here are a few considerations to keep in mind:
Aim for Maximum Profitability
Starting businesses should practice a maximum profitability pricing strategy. And while it may sound a bit weird, this type of strategy has nothing to do with being greedy. It’s all about making sure you include all the cost variables in the final price so your business can survive its first years and get recognized on the market.
As a beginner, you may think that, as long as you practice medium to low prices (to attract more customers) and have a busy season, your profits should be going up. However, when you draw the line, you may end up with losses or barely making the cut. So, why does this happen?
The answer is quite simple: you probably don’t understand your true costs of doing business. Let’s take pricing plumbing jobs as an example. This is a service that’s usually measured by hours worked plus the cost of supply materials. However, the hourly rate also includes transportation costs, expertise, and other expenses that keep the business going (not just the ones strictly referring to the job at hand).
Once you know all your expenses and decide on the markup percentage, you may be tempted to add everything up and consider the result as the base for all your pricing. And while this pricing strategy promises to cover all your expenses and even bring a profit, it’s not always the best. That’s because, in many situations, you may end up with prices that go higher than your competition.
Therefore, to make sure your business is attractive for customers, you must practice competitive pricing. This means finding a way to keep the prices at a similar level with the competition or, if not, provide an extremely convincing reason for the higher price tag.
Work with a Professional
Sure, this only sounds like an added expense, but a business consultant will provide valuable guidance when you work on your pricing strategy. They will also point out various methods that may help your business stand out from the crowd, such as switching to a flat-rate system (from an hourly-based one) or creating packages that help keep the price at the right level.
In conclusion, businesses should consider several pricing strategies and methods before they land on the best one. Also, it’s important to keep an open mind and adapt according to the market’s requests.
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