One of the most important things for your business to do is to price your businesses services appropriately. This will maximize how much value you can extract from your customers and creates a solid foundation for a business that will prosper into the future. There is no clear strategy or formula which you can use to price your services; however, there are some factors to consider when determining how much we can charge our clients:
1. Understand your business priorities
Is your firm looking to capture market share or are you looking to drive profitability? Depending on the stage of the growth cycle that your business is in, the price you will charge for services will change.
Remember that pricing shapes how your business is viewed. A service that has a low price may be perceived as ‘cheap,’ while a service that is slightly more expensive could be considered ‘premium.’ What you want your business to be known for, including how you want to position your firm will ultimately determine the price you should charge your clients.
2. Understand your customer
Understanding how much your customers value your services and how much your business improves their practice is crucial to pricing. If your business has clients who are ‘sticky’ or depend on your businesses services, you have significant pricing power compared to a business which sells a commodity. Ultimately you need to put yourself in your client’s shoes and determine what a ‘fair price’ is.
3. Understand your competition
Are the services you offer a commodity? If the answer is yes, it is essential to look at the competition and see what they are charging. Ultimately your clients are likely to do the same thing. It is then important to understand how your firm is positioned in comparison to your competitors. This will ultimately determine how much pricing power you have over your clients.
4. Keep track of trends in your industry
Keep track of outside factors that impact your business and your industry. Are there new areas of demand which could drive future revenue for you in the future? Could you cross-sell products to your existing clients? These factors will determine what prices you can charge your customers.
Pricing is not an exact science and to maximize the value you are receiving from your clients you need to have a feel for their stickiness, how your firm is perceived, and how your competition is pricing their services and the trends in your industry. It is also crucial to remember that pricing is flexible and can be adjusted over time.