How to set the right price for the services you provide in your agency? There is no cut and dried answer, because every business is unique. BUT we have a roadmap to help you figure it out.
THE PRICE IS RIGHT!
That is to say,… if it is, you win a prize!
But what if it isn’t?
In the game, you go home empty-handed. Too bad!
In business, it’s a bit more serious than that!
Rachel Klaver experienced it first-hand.
You may remember the episode. (You can find it here.) Rachel started as a freelancer. Settled on a price,… and never changed it. Not even after her business grew. The result was quite dramatic, and her business almost didn’t survive.
The whole story got me thinking. How do you know how to set the right price?
How do you work out a pricing strategy for services you provide?
Pet Peeves Around Pricing Models And Other Academic Nonsense
What frustrates me is that there’s no lack of useless advice out there.
Fancy models, promising frameworks, you name it.
It often comes from academics who haven’t been in business themselves.
I vividly remember an instance where I knew I had to start doing performance appraisals. I had no idea where to start, so I enrolled for a workshop. It wasn’t bad. It just was of absolutely no use to me!
BECAUSE, MY BUSINESS IS UNIQUE. SO IS YOURS.
I didn’t have an HR department. I don’t keep my staff at arm’s length. Formal isn’t my style. Yet all the recommendations from the workshop started with those assumptions.
No surprise I left more confused than I had walked in. I worked it out in the end. But what I am saying is that bookish models only help you so much.
In the end, you have to figure out what works for you.
But it doesn’t mean a fellow business owner can’t share their experience. (At least it will be information based on being in the trenches.)
How To Set The Right Price?
So back to pricing strategy.
One of the most useless recommendations you may receive is ‘Charge your worth’.
I mean, what does it even mean?
If I think I’m the bee's knees, I may charge too much. But if I’m not the most confident person around, I may seriously undercharge. Setting your price based on self-esteem is probably not the smartest move.
But if not your own self-worth, then what?
The answer to the question ‘How to set the right price?’ is not cut and dried. You need to consider…
- The value you provide: This goes back to the foundations of your business. (More on this further down).
- The costs you incur: This includes overhead, labour, and resources.
- Your market research: Do a competitive analysis and look at client expectations.
From there, you need to decide on the pricing model that works for your business.
Pricing Options That May Be Right For You
There are many options, and no simple answer.
The right pricing strategy for your business will depend on your business model, the services you provide, and your target market.
The key is to think outside the box. Your best option may be a combination of several models. Or different services you offer may need a different pricing strategy.
But above all, think win-win for both you and your client.
That said, here goes …
These are the most common pricing options for service business.
You charge clients based on the number of hours worked. On the up, it is straightforward. The downside is that it can be limiting in terms of scalability. It can also fail to fully capture the value you deliver. It’s a good place to test the waters, but it’s not where you want to stay.
This means providing a fixed price for a specific project or scope of work. This model works well for well-defined projects with clear deliverables and timelines. It’s usually for one-off projects. One example is a computer company who installs a server. The client receives a scope of work with a timeline. As a client, I like it because I know exactly what I am getting, when I am getting it, and how much it will cost.
This pricing model is often used by service businesses who charge a recurring fee for ongoing services or a set number of hours per month. Retainers offer stability and predictable income for both the agency and the client. It’s important to note that this retainer fee doesn’t need to be based on an hourly rate. You can totally base it on value.
This means setting prices based on the perceived value of the service to the client. This model focuses on the outcomes and benefits the client will receive rather than the time or effort invested by the agency. I really like this type of pricing. You work towards a certain outcome that is valuable to the client. You, on the other hand, need to consider your ability to deliver that outcome.
Unlike value-based pricing or cost-based pricing, this option links the agency's fees to specific performance metrics or outcomes achieved for the client. This pricing model aligns incentives and encourages agencies to deliver measurable results. One example that comes to mind are real-estate agents. They don’t get paid until the house gets sold. No result, no money.
As we mentioned above, many agencies opt to combine multiple pricing models to accommodate different types of projects or clients. For example, a combination of project-based pricing and hourly rates for additional services outside the project scope. There are many ways you can slice and dice models that could work for your services.
Many agencies choose to offer different pricing tiers with varying levels of service and features. This pricing model provides options for clients with different budgets or needs. The other big advantage is that it encourages upselling.
This is the arena of the SaaS Businesses, but it doesn’t mean other service business should rule it out as an option. The genius of this approach is that it provides ongoing value to clients and establishes a predictable revenue stream for the agency. It’s similar to a retainer, but with the difference that the client may or may not need your services regularly. They pay for the benefit of you being available. The biggest downside of this pricing option is that it requires clearly defined boundaries with your clients and it only works if you’re comfortable to enforce them.
What works for you may not be what works for the business next door. There is no one size fits all.
How to set the right price?
It always comes back to doing Business Your Way.
Do You Need Help With Your Pricing Strategy?
I hope this pricing strategy episode was more helpful to you than the performance appraisal workshop was to me.
But in case your pricing model needs some attention and you’re still struggling with the overwhelm, I would suggest to get in touch. I can help you figure out what would work for your business.
Book a call here.