In an increasingly competitive market, companies must focus on customer relationships and practice competitive prices . In this context, correctly pricing services is essential for good business results.
This is a challenging task, as there are several costs that must be considered. However, there are strategies that can help you reach the final price — without compromising your business’s profit margins.
What is service pricing?
Pricing is the process of determining how much a client will pay for a good or service. This factor is necessary for a business to operate. After all, it must be calculated to provide a positive return and competitiveness to the company — in addition to customer satisfaction.
In this sense, pricing services, specifically, involves several intangible and subjective factors that must be considered. This is because services are not standardized or easily comparable and depend, for the most part, on the ability of the professionals who provide them.
What is the difference between price and value?
In addition to understanding what pricing is, it is important to understand that price and value are different concepts. Therefore, before pricing a service, you must know what each term means.
A number of variables, including charges, profit margin, and manufacturing or acquisition expenses, are closely correlated with price. Conversely, value is related to how people perceive the service and the advantages it might provide for clients.
As a result, the price of a service should be determined by its worth. You will most likely have a large consumer base if you charge a very low price. But the audience your business will attract will be different from the one it would reach with greater rates.
Furthermore, higher prices usually indicate a higher value for the service. Therefore, it is possible to relate the value of the service provided and the price it should have on the market.
Why is it crucial to understand service pricing?
After learning more about the topic, it is worth understanding the importance of pricing your service correctly. As this task is a key point within any business, it is essential that it is done considering all the necessary factors to avoid losses.
In this sense, good pricing can provide relevant information for various sectors of the company. Both the financial and commercial sectors benefit when the company has good pricing.
For example, imagine that you know exactly what the costs and expenses are related to your service, as well as the company’s profit margin.
You can use this information to determine the break-even point for your company. To put it another way, you can specify how much you must sell in order for your business to turn a profit.
Furthermore, it is worth thinking even more broadly. Your company probably has clients who ask for discounts on the quote for your services. To avoid losing the deal, you will probably offer some percentage reduction in the price.
In this case, if you do not have the correct information about the company’s finances, there is a risk of giving discounts that are greater than would be appropriate. If this happens, the sale of your service could generate losses for the company.
How to price your service?
So far, you have learned relevant information about pricing services. Now, it is time to learn how to set a fair price for the services provided by your company. As a result, it can become competitive and ready to run effectively and efficiently.
Check out the step-by-step guide below:
Record costs and expenses
As you have seen, the first step in pricing services is to know all of the company’s costs and expenses to meet customer demands with quality. To do this, it is necessary to record all sources of output, such as equipment, labor, marketing, support, and raw materials.
You can use this information to determine a pricing that will cover costs and turn a profit for the company.
Take the customer’s willingness to pay into account.
The needs and preferences of customers drive a company’s operations. For this reason, while setting prices, consider the customer’s willingness to pay as well as the service’s quality and convenience, for instance.
This way, it is possible to define an amount that is reasonable for both parties. Furthermore, it is worth noting that consumers are usually willing to pay more for a differentiated experience.
Define whether you will charge by the hour or have a fixed price
The market your company is in has a big impact on how much you charge. Think about whether you will bill by the hour or if setting a flat cost per job is the better option for pricing your service.
To avoid any surprises during the procedure, most consumers prefer to know exactly how much they will pay. It is crucial to determine the typical amount of time needed and give the client an estimated cost if you decide to bill by the hour.
However, he must be aware that this amount is subject to change in the future. Clarity in the transfer of information is essential to avoid inconvenience.
Consider the prices charged by the competition
The price that competitors charge for services rendered is a good indicator and market thermometer. Therefore, you should research and see if what you charge is in line with the average and competitive.
Remember that charging too much above the market price can hurt your business growth. On the other hand, pricing too much below your competitors can affect your profits and your survival in the market.
Use technology to your advantage
Lastly, it makes sense to utilize technology’s advantages in the pricing process. For instance, a financial management system makes it easier to obtain current and trustworthy information about the expenses of the business.
As a result, pricing is simpler and faster. Therefore, if you are used to using manual spreadsheets , it is worth investing in modernized systems. In addition to reducing the time to perform tasks, corporate financial management becomes more qualified and secure.
