Pricing a service can be trickier than pricing a product. Getting it right means valuing your time and expertise and accurately weighing up customer perceptions, says Afsheen Latif
There are many reasons why you might want to review your service prices - perhaps you have received an official accreditation, maybe your overheads have increased or you want to fund expansion of your business. Whatever the reason, you'll need to plan carefully before you fix a new price for your offering.
You should start by identifying the benefits your service offers customers and attribute a value to each of those benefits.
Research your market
The next step is to conduct some simple market research. Look online to find out who you are competing with, what they offer and for how much.
If you find your current or projected prices are higher than those charged by your competitors, 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 your service is inferior.
Funding Options helps small businesses find the right funding, from more than 50 of the UK's leading lenders. Whether you need £1,000 or £10 million, to fund growth, bridge a gap or just stay in the game, they can find the best deal for you.
Calculate your costs
Next, you need to understand what it costs to provide your service to customers. Calculate your direct and indirect costs when supplying your services, including labour, training, overheads and marketing. You will need to 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 to your customers.
A value-based price reflects what a customer is willing to pay. You can charge more if you have built up loyal custom, offer a higher quality service or are seen as better than your rivals.
Gather feedback on your prices
To get a sense of the 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?
The best time to gather feedback on your service is immediately after you've provided it, while it is fresh in peoples' minds. A simple questionnaire works well. You can also carry out simple surveys online. Customers may be more inclined to respond in an honest and open way to an online survey because of the anonymity it offers.
Set a price
Once you have assessed the value of your offer, you can put a price on it. Customers are less likely to tolerate a price rise if it seems to come out of the blue and has no justification.
Consider whether it's worth offering extra value at the time of a price increase, so customers don't like they are being conned. You could also trial price changes to see how they are received.
You should aim to review your pricing every six months. That way you can keep on top of market changes and amend prices to reflect your costs and changes within your marketplace. This will help avoid the need to make sudden, large price hikes because your prices haven't been reviewed for ages - which will be off-putting to customers.
It's also important to have some kind of pricing plan and strategy - your pricing should be consistent with this.