4 Strategies On How To Price Your Services And Offers For Profit
A few weeks ago, I shared 3 Ways to Replace Your Income and Leave Your 9-5. If you haven’t already tuned into that episode, be sure to do so either before or after reading to this one.
In today’s blog post, I want to cover the 4 strategies on how to price your services and offers for profit. I’ll be sharing some of the basic principles to consider when starting.
Depending upon whether you’re selling a product (online or physical) or service may determine how you price your offer. For today’s blog-post, I’m going to dive deeper into the service-based business such as a VA or Contractor but still sharing some things to consider if you are selling a physical or info-online product.
Selling A Physical Product (Online Boutique):
You have the cost of goods (the clothes itself that you paid for)
You’ll want to consider all other fixed and variable expenses that go into an online boutique
Selling A Digital Product:
The benefit of selling a digital product is that regardless of how many people purchase, your costs tend to stay the same whether it for one person or a 100 people.
Okay, now let’s dive into how to price yourself if you’re a service-based business owner.
These are the 4 main ways to price your services:
Hourly Rate
Project-Based
Retainer
Hybrid
A quick plug for profit first if you haven’t already read the book, I highly recommend doing so. Mike Micalowich walks you through how to build in a profit for all types. He leverages percentages so that every dollar your business makes, it is already assigned to a category; taxes, operations, payroll, profit, and a few others. Using this method will further assist you in pricing your services and projects appropriately. This is extremely helpful especially when you’re starting because your income will most likely fluctuate in the beginning. A personal example was that when I was a contractor full-time, some months I would earn twice as much as the previous month based on client needs. This made it difficult for me to figure out how to pay myself, set aside for taxes because I was focused on the dollar amount I was making vs. assigning a percentage to it. So for example, while my income from month to month may have changed, the percentages didn’t. It allowed me to find predictability. If I knew that 20% of every dollar coming in was for taxes then it didn’t matter if I brought in 10k or 5k, 20% was going to taxes. Same thing for the owner’s pay. In the book, he walks you through how to determine what you need to pay yourself every month (similar to episode 315) and find a percentage that feels good for your so that every dollar comes into the business has a percentage tied to it.
Depending upon the type of business you might have 25% for taxes, 30% operating, 30% owners pay, 10% payroll (VA) and 5% profit.
Hourly Rate:
Track your time and paid for the number of hours that you work
PROS: low barrier when starting and easy to quantify for you and the client. I work X amount of hours for X price, this is how much I’ll make.
CONS: The focus is on the amount of time you spend vs the result you produce. Over time you’ll become more efficient at what you do, thus making you less time to complete a task, thus what you may have gotten paid $20 to do because it took you an hour, now only takes you 30 minutes to complete so you earn $10 for that task.
Keep in mind that it is important to just start and so even though you know long-term you don’t want to be hourly, don’t overwhelm yourself with thoughts that cause you to paralyze yourself in the beginning. Just start.
Project-Based:
This is when you promise to deliver a project based on an agreed amount. Ex: Creating a website
PROS: Expected income and you know exactly what you’re going to deliver
CONS: If you misjudging the actual time and energy it takes you to deliver the website (or insert a different project here), your actual effective hourly rate will decrease. You may also be finding yourself seeking out new clients all the time to fill continually fill your pipeline.
For example, if you price a Squarespace website for $2,000, based on $50 an hour but failed to consider revisions, the meetings with the clients, you’ll end up spending more hours on the project than projected thus decreasing your hourly rate.
Retainer:
This is an agreed-upon amount to enhance services every month.
PROS: Expected income, you are compensated on the results and not your time spent doing the agreed-upon work, even if you become more efficient at doing it.
CONS: By failing to have a proper contract in place to protect yourself, a client may and can still cancel at any time.
This might be a great option to convert hourly clients into after having some experience working for them and to provide more value.
Hybrid:
This is when you do any of the 2 approaches listed out early, combined with another. You can offer the client a quote for a project, let’s take the Squarespace one for example and then also include your hourly rate in the event they want additional work or support done.
Example: Lawyers may have a set fee to incorporate businesses but then on top of that they leverage hourly rates for other projects.
Things to consider regardless of the type of pricing you chose (hourly, Project-based, retainer or hybrid):
Your time
taxes (typically anywhere from 20-30%)
any COGS
Overhead
Hourly Rate:
If you’re not sure what to set your prices at, check out what the market says. Ask around. I recommend not straying too far from market prices. Build up your reputation and value and then increase your prices.
Retainer:
Consider how many hours it will take you to complete the task. On the actual proposal focus on what you’ll produce and the value, it will bring vs how many hours it will take.
Project-Based:
Example for a service offering: If you do a project-based service and the only bill for the hours that you spend on client site, you’re missing out on all the other hours you indirectly spent on preparing, doing discovery, pulling together findings, team meetings for the client, etc. You want to make sure you bill that into your overall price.
The example I’m going to give coming up is a little bit more intertwined but I want to give you a real-life example of one of my clients - Service/Makeup Artist:
you do bridal makeup and one person is $75…you’ll want to consider the time it takes you to get to and from the venue, any parking, the time it takes you to do the actual makeup, usage of the actual project, and taxes.
Also doing an exercise like this can help you truly see how much it costs to do business and may provide confidence when it comes to increasing your prices.
In the beginning, you may have a little more tolerance to lower your prices to deliver value and build up a referral network. With time, business owners will pay for services that are done well and done right. You also want to be conscious of over-promising and under-delivering. Always make sure that when you enter an agreement with a client that you deliver the agreed-upon results and deliverable.
