One of the most difficult questions any new service-based business must answer is what kind of pricing model they want to implement. There are countless options — hourly, project-based, or retainer packages, for example — but how do you know which one is right for you, especially if you’re adding new services to your roster? To help you figure it out, we asked the experts of Young Entrepreneur Council (YEC) to weigh in on this question:
“Offering a new service is exciting, but it comes with challenges — including building a price model. What is the best way to figure out how much you want to charge?”
Tips on Pricing Services
Here’s what YEC community members had to say:
1. Test Your Prices with Existing Audiences
“Anytime we roll out a new product or service, we always test the price with a few — we usually limit the number of lists to three — different existing segmented email lists that signed for that specific topic or a related offer to determine the best pricing model.” ~ Kristin Kimberly Marquet, Creative Development Agency, LLC
2. Let the Market Price Your Product
“Pricing can be such a sore spot for many entrepreneurs, but it shouldn’t be. Few realize that the value is in the eye of the buyer, which means you’ll always make the most money leaving the price up to the customer. Go have conversations — test prices, ask whether buyers would buy within a range of prices, and explore why they would or wouldn’t. These easy conversations will make you real money.” ~ Peter Kozodoy, GEM Advertising
3. Start High
“It’s easier to come down in price than to go up. So your first step should be to generate a solid ballpark price. You can look at similar products or services to do that, then do some testing or polling. Then I would recommend to start on the high end of that ballpark or even a bit above it. If you need to have a sale later on, customers will appreciate that.” ~ Nicolas Gremion, Free-eBooks.net
4. Do Competitive Research
“For us, it all boils down to research. Learn what the market is paying for your new service and learn what your competitors are charging for that service. Once you have that data, you can uniquely position yourself based on your price point, quality and offering.” ~ Joel Mathew, Fortress Consulting
5. Figure Out Your Market Positioning
“The most important thing when you price for a service, tool or product is how you want to position yourself in the market. Once you determine that, consider the price your competitors are charging for it and the number of expected achievable customers. Then, ask if are you adding a value compared to competitors and if you can diversify pricing by creating packages.” ~ Michael Hsu, DeepSky
6. Start At Twice Your Costs
“Start with a basic model work backward. First, figure out your costs, then aim at a price point of 2C, or twice your costs. Later, review the marketspace to see what competitive offers and then adjust accordingly. Hopefully, your operation is tight enough that you will be able to compete on value.” ~ Nicole Munoz, Nicole Munoz Consulting, Inc.
7. Conduct A/B Tests
“For us, we’ve found that continuous A/B testing is the best way to continue increasing conversions on our pricing page. Experiment with a 14-day free trial, different packages, and monthly pricing versus yearly pricing. For example, if churn is an issue for your business, a yearly price could help reduce your attrition rate, but you’ll only find out through testing.” ~ Syed Balkhi, WPBeginner
Photo via Shutterstock
This article, “7 Tips for Adding a New Service to your Business” was first published on Small Business Trends