What are the key factors to properly price business services?

by Jim Kaspari

There are several challenges to optimally price business services.  How can you be fair to yourself AND the clients?  If you charge too much, will you not get any clients?  What if the competition is undercutting your services?  You don’t have clear cost of goods sold, so how much should you charge?  What if you’re afraid to ask what you’re really worth?

These questions and challenges are more common with less experienced business owners, and entrepreneurs that aren’t fully booked yet.  It does get clearer and easier over time.  This article will help you consider several key components for pricing your services in such a way that you maximize your business profits, feel great about yourself and get fully booked as quickly as you’d like.

Since you don’t have direct manufacturing cost of goods sold [COGS] for your services, you’ll want to consider why you’re running your business as a consideration in your pricing.  What are your fixed costs or overhead?  How many hours of service do you want to provide per week or month?  How much money do you need for expansion?  What’s your corporate vision and how can proper pricing support moving towards your vision and helping more people?

The next thing to take into account is:  what’s in it for the client?  What results will the client accomplish by working with you?  What are all the benefits they will derive from those results?  How did they feel before working with you and how will they feel afterwards?  Emotional shifts are what life is all about.  We all want peace, love and happiness in our lives and it’s worth a lot to us!  After listing all these amazing results, benefits and emotions, do your best to add a valuation to them.  If they are nebulous and hard to value, consider how much they would have to pay someone else to get the same results or how much they may have spent in the past.

For those of us who catch ourselves giving “bro deals” or not asking a high enough price, this next tip is for you.  Some entrepreneurs experience this when they first transfer from having a job to having their own business.  For some reason the pricing was simply a stated fact for the company, but now “negotiable” with her own business.  The important thing is for us to respect and value our time, lives and expertise as much as we do for others.

Tabulate all your hours and years of experience to build your expertise to the level it is at today.  How much have you spent on education, certificates and classes or conferences?  Include meals, travel, tuition, books, etc.  I love the story of Picasso pricing a sketch of his:

Legend has it that Pablo Picasso was sketching in the park when a bold woman approached him.  “It’s you — Picasso, the great artist! Oh, you must sketch my portrait!  I insist.”  So Picasso agreed to sketch her.  After studying her for a moment, he used a single pencil stroke to create her portrait.  He handed the women his work of art.  “It’s perfect!” she gushed.  “You managed to capture my essence with one stroke, in one moment.  Thank you! How much do I owe you?”  “Five thousand dollars,” the artist replied.  “But, what?” the woman sputtered. “How could you want so much money for this picture?  It only took you a second to draw it!”

To which Picasso responded, “Madame, it took me my entire life.”

If you still find yourself selling yourself short, simply practice living on the edge of your comfort zone and ask for a little more each time, until you get to your proper price point.  You can even try an outlandish offer just for fun and to see that rejection isn’t really that bad.  Often a rejection simply means that they need more information or the timing isn’t quite right.  Sometimes people accept the offer!  This works especially well with clients you don’t really want to work with 

It’s also a good idea to research your competition’s pricing.  DO NOT  compete on price!  That’s a horrible and painful way to run a business.  To do your research you can shop online or you or a friend can be a secret shopper.  This is just for seeing where you lie in the pricing range.  The best practice here is to be in the upper range of service pricing, and focus on how you can be the best service provider on the market.  What is unique and special about you over your competition?  What’s better or different about how well you solve client’s problems or help them get exactly what they want?  If people balk at your pricing, just refocus their attention on what’s in it for them.  You respect them wanting to get the best deal, know they have choices, and you believe that they will regret trying to save money and encourage them to work with you.

Another amazing fact is that people receive perceived value based on price.  If something is priced lower, they often think it’s of lower quality.  I had a client who is an incredible photographer.  His photography is on par with the best in the area.  He priced his gallery pieces at half of the competition’s prices.  He erroneously assumed he would sell more.  During the coaching, I asked him about the quality of his work and if he would be willing to try an experiment … He went out and doubled his prices … and the number of images he sold went UP!  Of course he more than doubled his profits as well.  The most important outcome was that his clients were cherishing his works for years to come as a gorgeous work of art from a true master of his trade.