Are You Charging Enough? 5 Tips For Pricing Your Service
One of the trickiest parts of running your own business is deciding how much to charge. Price your services too high and customers will balk at the steep bottom line. Ask too little and you risk having potential clients think you are cheap or inexperienced. (Not to mention having to worry about covering costs and making ends meet.)
As a company helping millions of costumers to create their amazing DIY website, we know that many small and medium businesses struggle to find that perfect price point to maximize their revenues. In the simplest terms, your price should be calculated by adding your own costs to the profit you wish to make:
PRICE = COSTS + PROFIT MARGIN
Be sure to remember that costs include administration and overhead expenses as well as any materials you need in order to provide your service.
There is no magic formula to help you perfectly price your services and you will have to change your prices from time to time as you gain experience and tweak your services to follow the market. Nevertheless, we hope these five pricing tips will help you determine when the price is right – both for you, and your customers.
Do Your Homework
Whether you are competing for customers in a global market or in a small tourist town at the foot of a ski mountain, you have to get to know the competition. In addition to understanding how much your competitors are charging, you also want to do some in depth research about exactly what they are providing. Does a similar business that seems pretty cheap provide poor quality services? Does a more expensive one have many years of experience to back up their claims of being “the best” at what they do?
After examining what others are charging, you should have a price range to work with. To decide where you want to fall along the spectrum, consider your skill level, your experience and your reputation. If you do go for a higher price point, remember that you will have to explain to potential customers the added value that you (and you alone!) provide.
Flat Fees or Hourly Rates?
In many service jobs, you will also need to decide whether to price yourself by the hour or using a project-based fee structure. While this may not apply if you run a hair salon or massage studio, for professionals from web designers to photographers, this is an important question to consider. In general, clients tend to like flat fees so they have no surprises when they get the final bill, while service providers tend to prefer hourly pricing so they don’t lose money when a project requires more work than they anticipated. You may want to try out each approach for a few months to see what works best for you.
Know Your Salary Goal and Hourly Cost
Even if you end up charging per project, as a service provider you should be able to easily answer the question: “How much is an hour of my time worth?” To determine this, start by asking yourself how much you want (or need) to make each year. From there, you can easily determine your target hourly wage. Here’s how:
There are approximately 2000 hours in a work year so to determine your hourly rate, take your target annual salary and divide by 2000. For example, if you want to earn $50,000 a year, you should charge $25/hour. ( 2000 x $25 = $50,000 )
If this all sounds like too much math, try out this quick calculator.
Keep in mind, however, that if you are a freelancer, it will be next-to-impossible to “bill” 8 or 9 hours a day. Most freelancers find that about 50% of their time is billable, while another 50% of the time is spent looking for business, managing customers and taking care of the administration of the business. That means if you still want to make $50,000/year, you should charge at least $50/hour.
Break It Down….and Bundle It Up!
Once you have determined how much you want to make each year, you will have to do a little math and calculate your costs. Think about all of the costs that you will have to cover, from indirect costs like your Internet, electricity and phone, to direct costs like supplies. And don’t forget that your accountant has to get paid too! Once you have broken down all of the costs, remember to add those into your final rates.
It’s All In The Packaging
Now that you have your rates in mind, it’s time to think about how to present them to your customer. We recommend giving several options to your clients, just like we do here at Wix. It helps make your customer feel they’re in charge. Having several options can help you upsell your clients so you ultimately earn more money. Another great tip is to create a package price that bundles several services together and then offer a 5 or 10% discount if the client takes the whole package. This will also help them feel like they are getting a good deal – and everyone loves a good deal!
Be Willing to Hear and Say “No”
Finally, in order to ensure that your business is successful and profitable, you will have to be willing to take no for an answer from time to time or to turn down clients who want to underpay you. Unless you are way underpricing yourself, there will always be customers who find you too expensive. That’s okay.
In the long run, you would rather lose out on those ultra-cheap clients than start setting a trend of giving away your services for less than they are worth. If you give a huge discount to one client, it will be that much harder to price high for future projects. On the contrary, a higher price point can help you cultivate an image of prestige and ultimately earn you more clients – and more dollars – in the long run.
By the Wix team