As a new start up you will be eager to start doing business and balance the books. It can be tempting to offer low fees to attract your first client, but this strategy will set you up for failure. Here we explore why it pays to value your skills and how to perfectly price your services.

How to Price Your Services

Pricing your services can be one of the most challenging aspects for a new business. Not because you don’t value your own skills, you would likely not have been brave enough to start your own business otherwise. It is more to do with difficulties in estimating your value before you have a proven track record. We can help you demonstrate your value and build your reputation. 

Stop Undervaluing Your Work

Underpricing is dangerous because no matter the scale of the job, you must always cover your costs. On top of this you must charge a fair profit as well as paying yourself properly for the time you put in, including all of your planning and preparation. The main reason that new businesses underprice their services is simply fear. You may be afraid of scaring off the client with high prices. Or giving away business to other firms if you are not priced competitively. The fear of charging “too much” is very common. However, underpricing does more than hurt your income; it can leave you out of pocket now and damage your business’s reputation in the long term. 

Calculate Your True Costs

First of all you need to understand your true costs. If you can calculate your breakeven point for a job, then you can truly understand the cost of your work. Then you can figure out how much profit you should be charging. Before setting your prices, you need to know the costs of your:

• • Business expenses
  • Tax obligations
  • Non-billable time

The most obvious costs are the materials required to complete the job; for services, this is as simple as the time you spend on the job. Additionally to this you must add costs for your business expenses. This can include anything extra that you pay for to keep your business running, like electricity or software programmes. Consider here anything that you would include as allowable expenses on your tax return. It’s important to remember that this can only include the costs of resources that are used solely for your business. You should also consider your tax obligations and non-billable time, which is time you spend running essential parts of your business that you would not charge directly to a client. To help you decide how much of these costs to attribute to one job, first calculate how much your business costs per month. Then work out how many times per month you could feasibly complete a job of this scale and divide the monthly business cost by that number. This should give you a realistic estimate of your true costs.

Build Profit Into Your Pricing

To build a long-term sustainable business, you need to bill for more than just enough to “cover costs.” 

Your pricing should include:

• • Profit margin
  • Growth investment
  • Buffer for quieter months

Consider when you may need to cover costs and staff pay, even during quieter periods. You will want to build a healthy buffer to soak up these periods, considering seasonal trends and to avoid losing staff during quieter periods. You may want to also consider growth investment, planning to pay for future growth. When you make a larger profit, you can pay dividends to your shareholders. 

Position Yourself Properly

If you lack confidence in your pricing, look at your competitors’ prices for a ballpark comparison. It is important to remember that low prices often signal low value. In many instances, the client will be looking for quality, in which case they will discount the lowest-priced option. This is especially relevant if you specialise or fulfil a niche sector of your industry.

Ask yourself:

• • Who is your ideal client?
  • What problem are you solving?
  • What results do you deliver?

Better positioning allows you to charge more confidently. You only need one or two jobs completed to a good standard to give yourself a track record. Photograph your work for marketing materials and consider asking your clients for testimonial feedback. Remember to build good client relationship management into this process to develop customer satisfaction and evaluate your performance.

Test and Adjust

How you price your Services doesn’t need to remain fixed; it should evolve, along with your experience and as you become more established. If no one ever pushes back on price, you’re probably too cheap. Over time, you can use business development to increase your business value.

Tactics to increase your business value may be:

• • Gradually increasing rates
  • Offering premium packages
  • Dropping low-value clients

Confidence Is Key

Clients rarely question pricing as much as you expect. Once committed to the price, they will be looking for value for money in the quality of what you deliver. Consider every job and opportunity to demonstrate your craftsmanship and build your track record for client satisfaction. Reputation and reliability build your brand, and there is no stronger promotional tool than word of mouth.

What matters is:

• • Clear communication
  • Demonstrated value
  • Professional positioning

To develop a reliable brand even when you are just starting out, explain your expertise and reasoning for positioning the business the way that you have. You can speak about your training and experiences that have led you to start your business. State your values and vision clearly and above all keep it simple. Clear communication is key. Make sure it is easy for your clients to understand your offer and to reach you with an enquiry or even make a booking. 

Prestige Business Management Works for You

Prestige Business Management has the expertise to help you take control of your business and your destiny. Find out what we can do for you. Call us today on 0203 773 2927.