So here’s the thing…pricing your services can be a sticky situation. Why do I use the word “sticky”? Because there are 5 common issues involved with pricing that we can easily get stuck on in which we have ‘price regret’ within months. Most entrepreneurs make mistakes within their pricing structure by not charging enough. Two reasons: they’re not particularly clear about the value they are offering and they lack a wee bit of confidence in their position as a service provider, no matter how good they are.
The personal service industry is full of creatives and care givers; two groups of entrepreneurs who are at the biggest risk of devaluing themselves because they seriously love what they do so much, that if you asked them…they would probably give their service for free if they could afford to.
So how do you get un-stuck from pricing your services so you are making the money you deserve? It’s not an exact science, but here are FIVE questions & answers to help you become a little more solid how to charge what you should.
1) How do you position your prices in a sea of competition?
Do & don’t compare apples to oranges. Make a list of the pro’s & con’s of what your space & services have to offer and pair it with your ideal client to see where you fall in with your competition’s prices.
What your competitor is charging is only one part of the equation to positioning your prices. Another point to clarify is your specific value within the marketplace and what that may translate into as a price. Click to Tweet
For example, in my own situation, a local hotel spa has state of the art treatment rooms, a large and luxurious guest lounge and steam room, to name a few of their outstanding features. They will most likely be able to command a higher price of services than a home-based business because of their amenities (well, that and their overhead costs). However, you do need to take a few things into consideration. If, as in my own esthetic studio, your space is its own private building on the property, has been finished professionally and maintains high levels of customer service, it could certainly command similar prices. In my experience, the value to guests who are looking for a more intimate & private space is extremely high. They appreciate that they never see anyone else when they come & go from my studio (we live in a tiny town where everyone seems to know what you’re doing!)
Another example is mobile business. In this case, you are giving a very high value to your guest by bringing treatments to the privacy & convenience of their own home. It’s tempting to think that you should have lower prices than a brick & mortar business because you have no overhead, but your value comes with the extreme ease-of-use for your consumer. Add to that the time & cost it takes for travel…you should be charging a premium!
2) Do you know exactly how much your services actually cost you?
This may feel like an overwhelming project, but this is a smart business owners move! If you need product to give your services, the exact cost of professional product for each service are numbers you must know.
Do you know exactly how much a cut & colour for long hair really costs you? May have a rough idea, but you really need to nail these numbers down. A good resource for this is your product supplier. Usually bigger product companies will be able to provide you with a list of treatments that include the volume of each product used, plus the total cost of the product for that particular service. If your supplier can’t provide you with that info, you’ll want to measure out the exact product used for each service and attach the correct dollar figure to it. As an added bonus to figuring out your cost/treatment for pricing, you will save you money in the long run by preventing waste.
Also, to give you a better idea of what giving a treatment actually costs you, you’ll want to factor in the wage costs associated with the service. For those of you who are single owner/operators…don’t leave this part out! How much money are you charging per minute? In this business, we’re selling time. You’ve got to charge for it accordingly.
Product cost/treatment + Wage/treatment = Total costs of giving a treatment
The rest of the money left over will have to cover overhead expenses and profit. Where do your service prices fall in line with this equation? Are you making a profit?
3) Did you price your services low in an attempt to attract more clients?
When you’re researching your competition’s prices, keep in mind that they may have created their pricing strategy by looking at surrounding business and trying to gain a competitive advantage by discounting their prices. I urge you to not do the same! Don’t contribute to the pattern of driving down the value of the service in your whole area. What you offer is due so much more respect than that.
This is why it’s especially important to be clear on your value plus the cost per treatment so you aren’t tempted to discount yourself. Click to Tweet
Instead, you might better benefit from highlighting unique strengths and placing an emphasis on value and/or (sic.) time saved over money saved (via The Complete Guide to Understanding Consumer Psychology, www.quicksprout.com).
4) What do you do when people balk at your rates & ask for a lower price?
Sigh. This one drives me nuts. You know the type…they call asking about your services & prices and then they start this passive-aggressive process of telling you that it’s too expensive or do-you-have-a deal-for-x-&-y or so-and-so down the street charges less. They can be quite compelling! And because we are creatives and caregivers we tend to fall for their manipulation and end up succumbing to the pressure to lower our price. At the very least, we end up feeling disrespected and frustrated but unsure how to deal with the push back.
The interesting thing about giving a deal is that it does not lead to customer loyalty! Deal chasers will always go for the deal whether it’s your business or the one down the road. This is why I think daily deals can be the kiss of death for a business (they can work, but in very specific cases with a specific strategy in place).
5) When do I raise my rates?
This is a popular question!. If you’re not covering your costs correctly or you’ve been discounting in an attempt to keep competitive, you may already have your answer.
However, if your rates are inline with the above information, it could be time to increase your rates when your business productivity is consistently at 80%. You may have some attrition with a price increase, but if you are giving outstanding service, the likelihood is small. From that point on, continue your business building strategies at the new higher rates and watch your bank account grow!
Alternatively, if you are at 80% productivity it could also be an indication that you're at a stage to either hire a new employee or expand your physical space. Either way, it’s time to grow. Click to Tweet
Pricing your services is a huge topic and I've only covered 5 points here. However, at minimum, if you’ve done the market research and know what your services cost your business, you will, with conviction, know that discounting your services or keeping them low is a dangerous financial and client attraction strategy. When you’re clear about all the above issues, you will be able to confidently stand by your pricing.
Need some help creating a strategy to re-price the services in your business so you can make more money? I can help you do that!
Email me or call 250-516-3256 to get started with a FREE 30 min Business Discovery Session and begin the process of raising your rates.
If you liked this article you'll also want to read this one.