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Want to know the 9 most common pricing mistakes that service-based businesses make? Pricing makes a massive impact on the success of your business yet so many service-based business owners get it wrong. However, you can be one of the rare ones that gets it right. Keep on reading to find out the 9 most common pricing mistakes service-based businesses make.
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Pricing services vs Pricing products
This blog post is specifically about the most common pricing mistakes that service-based businesses make. This isn’t to say that some of these pricing mistakes don’t happen for product-based businesses too. But there are some specific differences between pricing services and pricing products. When you are setting a price for a product business it is likely that you have a clear idea of the cost related to selling the product (variable costs) and the overall costs of running your business (fixed costs). This means you can price your products above the variable costs and ensure that with each sale you are making a contribution to the fixed costs. As a product-based business it is usually easy to work your breakeven point and then gauge whether your pricing will or won’t allow you to be profitable.
But pricing a service is different. You are selling something intangible and usually it is based on your knowledge, skill or experience. Rather than there being a fixed cost based on what the business has to pay to buy or create the product it is your time that is the cost. It is common for service-based business owners to not pay themselves a fixed salary and not properly count themselves as a cost of selling a service. And then there is the wonderful joy of your self-worth and money mindset impacting what you feel you can charge.
As hopefully you can see pricing services is slightly more complicated, but that doesn’t mean you can’t successfully price your services. It just means you need to give your pricing a bit more consideration and avoid these X common pricing mistakes service-based businesses make.
THE 9 MOST COMMON PRICIISTAKES THAT SERVICE-BASED BUSINESSES MAKE
1. Not having a pricing strategy
A common pricing mistake service-based business owners make is to pick a price out of thin air, rather than having a pricing strategy. Using a pricing strategy will help ensure that your pricing makes sense within the business as a whole and it will also allow you know what other choices you need to make in relation to marketing and branding.
If you aren’t familiar with the variety of pricing strategies that exist you can learn about the most common pricing strategies for small businesses here.
2. Underestimating how much time you spend on delivering a service
As a service provider the main cost is likely to be your time. Now if you are following an hourly or daily pricing strategy where you are paid a flat rate for your time then it is fairly easy to calculate what you need to earn on an hourly or daily basis in order to meet your financial targets for the year.
But if you are selling your services in a package format it can get trickier. The most common pricing mistake service-based businesses make when selling in packages is underestimating how much time they spend on delivering a service. I run Pricing Power Hours and whenever I work with a client who offers packages and we look at what they are really earning per hour they are shocked. So don’t make this same mistake.
When you are pricing packages you need to think about everything it takes to deliver that service and properly cost out the different elements. If there is a variable part of the package. For example, with my 1:1 Business and Marketing Mentoring clients I offer ongoing Voxer Support. Now inevitably some people will take up more time than others. Your job as a business owner is to try and adequately predict usage to ensure your packaged rate allows for variable usage.
Learn more about how to price your coaching packages to achieve your financial goals here.
3. Blindly matching your competitors pricing
It is good practice as a business owner to be aware of your competitors pricing, but it should not dictate the prices you set. Their pricing will (hopefully) be based on their business objectives and that could be completely different to yours. You have no idea what their financial objective for the year is and you have no idea what their resources are. Maybe they are willing to work twice as much as you are. Maybe they are outsourcing aspects so they can take on more clients. Maybe this is just one of many different income streams and your business is your only income stream. And *shock horror* maybe they aren’t making any sales at that price. Or maybe they are secretly discounting.
Basically, you have no idea what is happening in their business so don’t blindly set your prices based on your competitors. I’m all for having an awareness of what your competitors are charging, but it should not dictate what you decide to set your prices at.
4. Keeping your prices the same for too long
Pricing isn’t something you should do once and then leave. You should be reviewing your pricing on a regular basis. Ideally a minimum of once a year. Now it might be when you review your pricing it still makes sense to keep them as they are. There is nothing wrong with that. But don’t just leave your prices the same for years without even reviewing them.
WANT HELP PRICING YOUR SERVICES?
I run Pricing Power Hours so that service-based business owners can quickly get expert pricing advice and be confident with their pricing.
You can find out more and book a Pricing Power Hour by clicking here.
5. Your pricing and branding don’t work together
It is important that your branding and pricing work together. Think about the difference between Primark and Prada. One has positioned themselves as a budget-friendly brand and one has positioned themselves a luxury brand. Branding helps to set the context and your pricing should fit within the context. Sending thousands of pounds for a Prada handbag fits because of their luxury brand but if Primark tried to charge that much it would feel ludicrous.
6. Assuming you won’t be able to find clients willing to pay a certain price point
One of the most common pricing mistakes service-based business owners make is to assume that if they raise their prices they won’t be able to find a client willing to pay that new price. It is common for service-based business owners to initially set their prices at a price point that is comfortable for them (based on their money mindset). They’ll think about what they would be willing to charge and price within that range.
However, as you become more experienced and more confident in the value you provide you might want to raise your prices, but there will still be a ceiling, in your mind, of what is too high. The important thing to realise is the ceiling is in your mind and is not a fact. Now obviously there is a point where you could price yourself too high that no one buys, but you’ll only know if you’ve priced yourself too high by setting that price and then selling.
7. Offering discounts in a panic
Another common pricing mistake is that if sales are slow you think it is due to pricing and you offer a discount. Discounting can be very dangerous (read ‘The Dangers of Discounting your Services’ here) especially when they are done in a panic rather than being part of a strategic plan. If discounting is part of your pricing strategy and you know that you’ll take part in Black Friday or you offer clients of X 20% off everything else then you can take that into consideration when originally setting your prices. However, when you offer a discount in a panic it can have a detrimental impact on your bottom line. If you decide to discount by 20% you have to make 25% more sales in order to generate the same revenue. Keep that in mind before you discount in a hurry.
8. Not considering all your business costs (usually this means not properly paying yourself)
At the beginning I spoke about the difference between pricing products and pricing services, and how when you know all of your costs it is easier to price in order to create a profitable business. Now the biggest pricing mistake I see service-based business owners make is they haven’t properly worked out their costs for running a business. Usually they have worked out the costs for everything they need to run their business except for themselves!
As a service-based business owner the business won’t exist without you and you should be paid properly. Ideally you should be setting yourself a fixed salary and that should be an expenditure of the business. Obviously if business bombs you can increase the money you receive or decide to reinvest it, but at least you know you are pricing to build a business that is supporting you financially.
If you have been struggling to pay yourself properly and feel as if you just get the money that is left over you should definitely consider reading Profit First (check out my review here).
9. Overdelivering
Last but not least a big mistake service-based business owners make is overdelivering. Now technically this isn’t a pricing mistake. However, it can ruin all the hard work you’ve done to set your prices. It is super common for business owners to overdeliver, but this usually results in you spending more time or money on a client that intended, which ultimate is eating into the profit you are going to be making as a business. As a business-owner you need to set strong boundaries. Set your services, set your prices and then deliver the highest quality service you can, but know you don’t need to over deliver.
There you have it! You now know the 9 most common pricing mistakes service-based businesses make.
I’m super passionate about helping service-based business owners set their pricing properly. Your pricing directly impacts the revenue you can generate, how profitable your business can be and how much money you as a business owner can receive.
I hope by reading this blog post you can avoid these pricing mistakes and build a successful and profitable service-based business.
In the comments I would love to know if you’ve made any of these mistakes in the past and what you are going to do differently in the future.
NEED HELP WITH YOUR PRICING?
I run a Pricing Power Hour to specifically help service-based business owners to confidently set, or reset, their prices.
There is a lot to consider when setting your prices and working with a pricing expert is great to not only be able to quickly get your prices set (so you can get selling), but to also ensure that your money mindset isn’t getting in the way of you building a profitable business.
You can find out more and book a pricing power hour here.
Want help with more than just your pricing? I work 1-to-1 with coaches, consultants and online service providers to get strategic across all aspects of their business so they can ultimately build a business they love and that works for them.
You can find out the other ways of working with me here or send me a message here to discuss other options.
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