What are some tips to setting prices?
I am providing interior decorating services and am wondering if I should try different prices to see what works best, but I am not sure it is a good practice to have different pricing. Also, is it better to start higher and then lower if necessary or would starting lower and raise prices if I see an increase in demand be better?
"Pricing is a mix of art and science," said Blair Enns, published author and CEO of Win Without Pitching. I couldn't agree more.
Different clients are willing to pay different prices for the same service. To determine a median price point, you need to make sure you fully understand your material costs, overhead costs, and labor costs. That way you can set a price that appeals to all customers and covers your business expenses while still making a profit.
The Business.com team recently published a guide to How to Set a Price for Your Service that can help answer your question. The guide offers tips on how to research standard pricing in your industry, calculate markup, and adjust your prices on customers if necessary. Hope this helps!
First I suggest you develop a business plan.... A plan that can be reviewed with a Score counselor.... You must have a Mission and Vision Statement and Unique Selling Proposition (USP).... I am a deductive thinker, so I would go about the process accordingly:
1. Start with the fact that there are about 2040 hrs. in a year to work how much money do you wish to make in a year?
2. Decide with your business plan the amount of revenues forecasted. using the following guidelines, a high, low and realistic sales forecast.
3. Then zero base budget your fixed costs.... Then look at your semi fixed costs , i.e. fuel when driving to a client, depreciation of your car, .... The business plan will help you with this, as would an accountant and Score counselor,
4, Figure the time for each case, especially if custom, but most importantly know or have some idea what your competition charges, and they make some sales calls and try out your pricing.... You can always reduce your price but do not give yourself or company away..... I always figured my time was money and priced either by activity cost baselines with hourly commitments.
I would suggest that you should first set your own labour rate per hour. What is the minimum for you to get break even in your business. This way you will set something 50% beyond your break even labour prices.
Initially you need to go back to the customer beyond your expectation, which is at least an extra visit for consultation. You need to cover it up.
During first year you just concentrate on getting your labour in your pocket.
in this first year try to find vendors in interior decoration and source them, register them for your future business needs.
This way you will have a data base for 2nd year when you will start making additional profits from your vendors.
Then you should still keep your labour cost same as 50% beyond your break even point number for your labour rate.
You can also start an introduction offer to give 10% discount off certain amount of work, say in your estimate beyond certain value. This way you can size up the opportunity for better revenue.
I mean there are endless possibilities to set pricing. You will have to send me a separate email and based on your need status of business can be advised how to move forward.,
Don't think of it as pricing, think of your business as adding value. Create premium pricing to help your profits.
Some companies have Bronze Silver & Gold pricing.
You need to be able to take away the stress of your clients.
I always think you should start Higher. You can go down, but you can't go up. It also depends on your market and what you do. Do you have a good feel for: You Uniqueness in the market? Your competitive Advantage? Who is better than you? Selling today is about selling from Why to How to What. Price is always an issue, but set your Unique Value to not make it the First Issue.
If you start with a higher price you at least have somewhere to go if you want to play the pricing game with competitors. Once you provide a lower price, you've justified to the client that they can get you for that and will likely never be able to get them back to where you can do a more profitable job for them.
An exception to this is where you have an entry-level service that is positioned as a starting point, or proof that you can and will deliver as expected. Even then it's sometimes difficult to get back to the higher price point that you need.
If you go too low to get the work to begin with, you commoditize yourself right out of the gate and that's really not a professional approach at all. The first thing I always do with a consulting client is have them shop the competition because if you don't know what they are doing/saying, you are operating blind and could waste a lot of time/effort/resources struggling to find out why your approach isn't working.
Beyond all that there are two basic answers to this question...
Answer #1: The easy, "I just want to provide a simple service so I can work for myself" short-term answer. You'll find that at some point you'll hit a ceiling on how much you can make because your time is limited, but that may be all you want out of the work. You may also want to focus on smaller projects or residential as opposed to commercial.
Answer #2: The more involved, long-term, "I want to grow a serious business that is self-sustaining and can eventually be sold so I can really enjoy my retirement" business. This is where you need to be thinking about things before they happen, before they are an issue that affect other things. This isn't worrying. This is planning.
If you are newly retired and just want something to do or added income, what I cover below can still help with the more simple approach of Answer #1.
With either answer I have clients focus on target market(s), testing, competitor pricing, and the business model/profit model defined in your business plan and/or financial plan.
If you don't have a business plan or something that clearly defines who, what, where, how, when and why for your business, you are going to be pushing string uphill compared to your competitors who approach what they do more seriously. And by more seriously I mean they define and manage all areas of being in business instead of just saying, "I do interior design, hire me", and then maybe work to build a portfolio.
Apply some critical thinking toward your pricing and services more than just slapping a price tag on a general service and you'll automatically gain an advantage over your competitors that don't think it through further. It will at least move you closer to competing with those who already do something similar to what you plan on offering. This often helps when you're starting out and there are others are already known and established in your market.
With serious pricing considerations there are other factors that include...
- Do different services require different levels of effort?
- Do different levels of effort require additional time, materials, commitment, etc.?
- Is there a scarcity of any particular products or services in your target market or industry/profession?
- Have you 'shopped' any of your competition to know exactly what you are up against and what their approach is?
- Have you carefully considered the ramifications of discounts and how to (or not to) use them so you don't devalue or commoditize your business?
- Do you have a basic presentation that you can use as part of your testing?
How are you planning on getting new clients? Have you worked out what you expect your average lifetime customer value to be as a starting point for your pricing model? Some might say you have to wait until you get clients, but that's not at all true. You need to know why you need to charge what you will. If you need to make at least $5k monthly, is that 10, 5, 2, or 1 client? How much can you spend to hit any of those numbers factoring in your profit margin.
What is the second service you will sell a client? Your next best customer is the one you just delivered to because you've hopefully established trust and success in your work. You've thought through different scenarios that make another service a perfect addition to what they just paid you for, but your didn't try to add it it even mention it before you got the first check.
And yes, if you work for yourself, you still need to pay yourself AND have a profit margin on top of that. Otherwise you are taking your business expenses out of your own paycheck.
Are you partnering or doing joint ventures? How will your pricing need to adjust in those scenarios, if at all? Do you pay a finder's fee, or share in the profits of a project? Or does a promotional partner's cut come directly from your own paycheck?
I've found that most people that don't seriously think about these types of issues sooner rather than later stay small and struggle. They just wanted to get started ASAP and then find they never got out of that basic mentality. They end up with a business that is really nothing more than a glorified job where they have all the problems, worries and concerns of every aspect of a business owner (with very few systems or processes to manage it all), instead of just the fun work.
Most of the questions to the above lead to more questions and although you may not have a lot of the answers in the beginning, the answers develop over time.
Back to the simple answer...
Obviously if you are just wanting to get started without any more thought or effort than absolutely necessary, go back 6 paragraphs, and figure that part out. If you just decide on what you want to charge for a service and nothing else, you are approaching the work/business very shallowly and will miss 75% or more of your potential income.
Then get in front of a few of your competitors as a potential customer. See what and how they pitch their service, how they follow up or keep in touch. KEY QUESTION - How long before they give up on you? Is their lack of follow-up and persistence an opportunity for you?
Technically, if you have qualified a person or business as a potential client, you should never lose touch as you never know when they might activate or reactivate themselves - or make a referral. Social media is great for helping you do that inexpensively as long as you use it correctly.
Most small business owners focus on getting one customer/client after another (without really having a plan for catching and keeping them) and never maximize the full potential of what could be. Try to get beyond that as soon as you can and your business will grow faster and be more stable as a result.
That may have been a bit more than just the 'tips' you asked for, but I didn't know if you realized the advantages of going a little beyond that simplicity by putting some things in perspective.
Price is payment. If you create value, you will get price. Start competitive and on the higher end; people see value in higher prices. From there give a now commitment price that's discounted. You want to create a deal and value and get an instant commitment.
If you are unsure you can start with a ball park price. or a range something like between X and Y. Which would depend on the quality of the clients requirement. This will then engage further discussions and sort out the tyre kickers from the ready to start calls.
You could also add a small incentive discount for clients that are happy to supply a referral or comments on you webpage.
As indicated before it's always better to set a slightly higher price, and move down if required. Keeping in mind that the lowest price is no guarantee of winning the job.
Dear Jane, it is quite okay to give different pricings for your service. Usually, in software parlance, there are 3 fundamental pricings - Free, Basic and Premium. Similarly, you could have Basic (consulting only), Premium (consulting+facilitation) and Professional (consulting+execution). Similarly, subscriptions have an interesting model too. Hard copies may cost $125, soft copies $75 while Hard-Copy+Soft-Copy combo is priced at $130. Which one would you choose :) ? May be these are cues enough for you to not only set the pricing right, but also extend a model which gives you maximum revenue.
Easy to drop prices but hard to increase, especially with referrals, etc.
I'd do a bit of mystery shopping (or commission a friend) to determine market rates.
Set base pricing based upon these results BUT use promotions, like Groupon, to set more attractive initial pricing to get some traction.
You'll also want to consider business directories, like Angie's List, to get your business in front of buyers (NOTE: they have their own promotion capability)