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Setting the Price of Your Service – Part 4: My Service Cost

January 24, 2013

In Setting the Price of Your Service – Part 1: Floor Price, Setting the Price of Your Service – Part 2: Ceiling Price and Setting the Price of Your Service – Part 3: What About the Competition you gathered information to assist you in determining the price you should charge for your services. The final step you need to take is to set your price.

Consider factors that can influence your price:

  • How many do you expect to sale (sales volume)
  • How much revenue to you expect from the service
  • What is your competitive advantage
  • Are their pricing constraints in your industry (i.e. regulated by government, seasonal customers, etc.)

Compare your service to your Competition:

  • What pricing position does your closest competition use?
  • How does their pricing position align with your competitive advantage?
  • What pricing position is consistent with the image you want to have in the market?

Calculate your price….

Consider if you can create a package deal or if you can make additional money by thinking outside the box…

Let’s take a look at an example and see how much a graphic designer decides what to charge for a custom logo design:

Target Customer for the graphic designer is the start-up “handy-man” business owner (i.e. Plumber, Electrician, Lawn Care, General Contractor, etc).

Step 1:

Floor Price: $72.19 per hour

Step 2:

Ceiling Price: $200 per logo

Step 3:

Competition 1: $75 per logo (online firm who outsources work)

Competition 2: $150 per logo (independent graphic designer)

Competition 3: $200 per logo (independent graphic designer)

Step 4:

Logo design alone is a small portion of anticipated sales revenue and volume.

The competition services a large range of customers and there are no pricing constraints

The price calculation: the graphic designer can see by looking at this information that he or she needs to charge per logo and not by the hour. With this in mind the graphic designer works through the following:

  • Average logo job takes about 5 hours (consultation, providing 3 logo choices and up to 3 edits of selected logo)
  • By the hour the cost for their time would be $72.19 X 5 = $360.95
  • More than the ceiling price….Considering this and knowing the quality of the work he or she provides the decision is made to charge $160 per logo so the price is below the ceiling price per logo.
  • A calculation to determine the pricing they can charge for a “new business owner” package (to include custom logo design, business card, vehicle magnet, postcards and door hangers). This will be done by pricing each service separately and then looking at them as a whole. The package will be the majority of their anticipated sales revenue each year.

Going through these four pricing strategy steps will assist you in charging the best price for your service and ensure you can reach your financial goals.

If you have any questions or would like me to take a look at your calculations please contact me via www.kgaskinsconsulting.com.

Wishing you productivity and Prosperity,


Kim

 

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3 Comments leave one →
  1. January 24, 2013 11:46 pm

    Another idea is to try “anchor” pricing. Set 3 pricing levels-with those prices you were just talking about. With 3 levels of pricing, giving clients a choice, you may be surprised that the mid- or high-level will be the most opted for. Of course, each option also has a corresponding level of service.

    Vickie
    from UBC

  2. January 25, 2013 12:53 am

    Great ideas. Pricing can be one of the biggest causes of stress for solo business owners.

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