How to price your services successfully

How do you know if you are pricing your product or service advantageously?

Let’s begin by saying, pricing your goods and/or services is an ART, not a science. It’s arguably one of the harder things to get right and can lose you thousands of dollars in potential revenue. Determining prices for your products and services, also goes hand in hand with your business strategy and brand, how your business is perceived in the market.

The key is to offer your product/service at the highest price, that your customers are still prepared to pay. At minimum, your prices need to need to be at least high enough to cover your cost of production and distribution, as well as your business overhead costs.

Here are a few different pricing strategies to consider, to determine what might best fit your business – 

1. Cost-based pricing

Cost-based pricing involves analysing the true cost of your product or service, otherwise known as your cost of goods, sold, and applying a margin to it to give you a sales price. The cost of the product should include whatever it took to make/produce/purchase it, as well as the cost of distribution. The higher the margin is, the more gross profit the business will make per transaction. Cost-based pricing is often used in service-based businesses (where time is tracked and charged for) as well as manufacturing or retail businesses (where product make or purchased is tracked).

2. Market-based pricing

Market-based pricing involves analysing and determining prices your competitor’s are offering, for the same or similar product or service. If your business brand is to be the ‘lowest price guarantee’, then you will need to keep a close eye on what your competitors are offering, in order to beat it. This would also suit business with a low-cost, high transactional volume business strategy, who want to ensure their price point is at the lower end of the market. With a lower price point, you would aim to sell more products/services.

3. Value-based pricing

Value-based pricing allows you to price your product or services based on the perception of value your customer feels they are getting. The price is just a numerical evaluation of how much they value what you are selling. It ensures your customers are happy with the price they are paying. If you are selling a product that is unique (such as a clothing designer), or have a real point of differentiation in your business, value-based pricing might be best for you.

Key takeaway: the better your perceived brand is in the market, the better your will be able to price your products and/or services. If you build a great brand, and have loyal customers, you can charge more for the same output.