Knowing how to price service properly is a very important factor in ensuring the survival of your company in the market. Without it, it becomes much more complicated to maintain a competitive price and offset business expenses.
Although indispensable, this is not a simple activity: it is necessary to consider various elements and perform various calculations. Do you want to know more about the topic and learn how to perform this pricing correctly? Continue reading and know what you need to consider when doing it, in addition to other tips that will facilitate this step so essential for the success of your business!
Why is it so important to price service correctly?
The price of service impacts several aspects of a company, the most evident being the fact that it will be from that value that you will be able to bear all the costs of the business and guarantee a satisfactory profit.
But it also plays a key role in attracting customers, as it determines the accessibility of the service to its target audience. Therefore, the price is also strategic to define the future of the business. In this sense, it is necessary to fulfill requirements and purposes when establishing it, such as:
- allows you to invest in future projects;
- delivery of satisfaction to your customer;
- adaptation to the target audience;
- highlights the company before competitors ;
- provides for the possibility of discount opportunities;
- guarantees payment of obligations;
- attracts investors.
What should be considered when pricing services?
It is very important to know that this pricing is not done in the same way as for products. There are 4 characteristics that specifically influence the pricing of a service. Check it out below!
Unlike what happens with a commodity, it is not possible to run a service, which means that it cannot be easily evaluated using tangible metrics, such as weight, measurements, the material used, etc. For example, to examine the quality of a consultancy’s work, it is necessary to analyze agility, service, results obtained by the client, among others.
Nor can the services be returned, resold, or stored once they have been purchased by customers. The processes, resources, and systems necessary for the provision of the service are used while it occurs.
The quality and consistency of service can be changed in the face of several factors. For example, an advisor may be more agile or slow to deliver results depending on your emotional state. Among other factors that cause variation in services, are:
- knowledge and experience;
- relationship with the client;
Goods can be purchased for later consumption by the purchaser or a third party. However, service provision is not separate from consumption.
For example, imagine that you work with licensing the use of computer programs. The customer has the right to use it as soon as he acquires the license. Another example is the medical examination, in which production and consumption occur simultaneously.
It is important to consider these 4 characteristics when pricing your services so that they are not priced in the same way as a product – which is tangible, can be perishable, is invariable, can be consumed after purchase, or even resold – otherwise, your services may have inappropriate prices.
What are the best tips for pricing more easily?
Now that you understand how service pricing works, its importance, and objectives, see the following topics for the best tips for doing it efficiently!
Do a price search
The first step is to do a survey of the values practiced in the market. From this information, you will have an idea of how much your competitors are charging for the type (s) of service you provide.
However, the entrepreneur cannot simply reproduce the price of competitors, since each business has its own characteristics, such as costs, differentials, infrastructure, among others.
Know all your costs and expenses in depth
Understanding the costs of providing the service is important so that you know precisely how much you spend on it, preventing the company from being in the red.
First, understand that costs are expenses directly related to the service, while expenses are not directly linked to the provision. Thus, among the expenses that must be considered, are:
- cost with materials: amounts spent on the acquisition of goods to provide the service. For example, a cleaning service will cost you with gloves, chemicals, paper towels, etc.;
- labor cost: remuneration for the labor provided;
- fixed expenses: independent of monthly sales, such as rent and insurance;
- variable expenses: change according to the number of services provided, such as commuting, to perform the service.
Taxation is usually one of the biggest complications for the development of companies. But it is possible to take a series of measures to reverse this situation. At the time of opening the company, the entrepreneur will be able to choose between three taxation regimes, which have a significant impact on the calculation of taxes.
Accountants will need support to choose the most suitable for your business. These professionals will also study ways to legally reduce taxation, ensure compliance with legislation, and prevent tax errors from being made.
Put a profit margin
After calculating expenses and costs, you will need to add a profit margin to the price. This is important to constitute reserve capital for contingencies (unpredictability), attract investors, expand the company, etc.
In practice, the margin consists of a percentage added to the final sale price.
Choose a pricing model
There are three methods of pricing your service: hourly, fixed by task, and variable. There is definitely no better way than the other – you need to analyze the characteristics of the business and the preferences of the customer to make the decision. Understand them better:
- per hour: it is based on the value of the hour worked, guaranteeing a return on the real-time spent on the task;
- fixed: the customer bears a fixed fee for the service provided. This avoids surprises for the customer, but the provider needs to calculate the value according to the hours needed to perform the service;
- variables: this model varies according to each client and the peculiarities of each project. For example, the payment is calculated according to the results obtained by the customer.
Consider your differentials
Customers are willing to pay more as long as their company presents a relevant differential in relation to competitors, and that justifies the price. Attributes such as experience, qualification, service excellence, materials used, and other differentials can make it possible to charge a higher price.
Know how to negotiate
Negotiating prices means offering discounts, installments, payment alternatives, and applying other techniques that make the scenario more conducive to purchase. It is necessary to consider all the factors previously explained during the negotiation, such as costs and profit margin.
What are the consequences of inadequate pricing?
Remember that the price of the service must be balanced, fair, and appropriate to the market. If it is too low, you will not be able to maintain the business in the long term. On the other hand, your business will lose its attractiveness if the price is exceptionally high.
Ideally, pricing should be calculated with a focus on business profitability – return earned from what was invested – by relating the sales volume to the applied profit margin.
Pricing service properly is not easy, but by applying the tips in this post, you will be able to guarantee to maintain your competitiveness in the market, attract customers and ensure the growth of your business.
Download Free Pricing Templates
To price your services more efficiently, you can download and use our FREE editable templates, They will take a lot of burden off your shoulders and will help increase your productivity.
To ensure that your business is economically sustainable, there’s nothing like pricing services correctly. It is also important that you are prepared to accept “no” as an answer or even refuse the proposal of some customers who will want to pay a much lower price for your services. But rest assured: in some cases, it is better to lose the customer than to put the integrity of your name at risk. In other situations where the consumer insists on bargaining, it is worth talking and presenting the benefits that he will gain. Negotiating and pricing services at a fair value for both parties is always the best solution.