Pricing is one of the four P’s of marketing. How much thought have you given to pricing your services?
Pricing: The Endless Question
“How much should I charge?”
“No one is buying my editing package. Should I offer a discount?”
“I think my prices are too high.”
“I think my prices are too low.”
Pricing…the endless question. I don’t know how many meetings I’ve been in, how many conference calls, or how many discussions I’ve participated in surrounding pricing. Whether you’re a new consultant, coach or service provider seeking guidance on setting basic pricing structures for your business, or you’ve been in business for a while yet have that sneaking suspicion you’re undercharging for your services, setting prices for your services isn’t an easy thing to do.
It’s fraught with second-guessing: am I charging too much? Too little? And if you charge too little, you could be leaking money…money that could be going to your business’ bottom line.
Pricing your time – which is really what it means to put a price tag on your services – is both a science and an art. Some of the tips in this book focus on the science of pricing such as the psychology of pricing, knowing your industry’s standard rate and so forth. Other sections delve into the art of pricing: changing your money mindset to price your work more aggressively, understanding price perception and so forth.
Know What Your Time Is Worth
Time is money. Each hour of the day you spend serving others is time you could spend in a number of ways. In a service-based business, you exchange your time, talent and expertise for money from your clients. But how much is your time worth?
Start by determining how much you wish to gross annually. Let’s assume for the sake of this example that you wish to gross $100,000 annually. Gross means the total amount you wish to make from your business before any bills are paid. It’s an estimate of all the money flowing into your company.
If you run a service-based business, time is money. Let’s assume you and you alone, will provide services for your business.
There are 52 weeks in a year, but let’s set aside 2 weeks for vacation. That leaves 50 weeks in which you must earn $100,000.
$100,000 divided by 50 weeks = $2,000 per week.
Now let’s assume you work a 40-hour workweek. You probably need to invest more time in your business than that to handle accounting and operational tasks, marketing your services and so forth. But again, for the sake of this explanation, let’s assume you will work 40 hours per week solely on providing billable time services to clients.
$2,000 per week divided by 40 hours in a week = $50 per hour.
To earn $100,000 per year, you have to work a solid 40 hours per week, which means 8 hours a day doing nothing but serving clients. That doesn’t include time for lunch, time to do your office tasks or whatever else you need to do to promote and manage your business. But it does demonstrate how you can back into an hourly figure that helps estimate what your time is worth and provides what you need to start thinking about an hourly rate to achieve your goals.
(This article is an excerpt from my book Pricing Your Services: 21 Tips for More Profits)