How should small business owners price their services?

Running a small business and not sure how much to charge? We'll help you figure that out.

working on laptop with pricing sheet
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In a survey released earlier this year, 15% of small business owners said one of their biggest early mistakes was pricing their products or services too low. When a business is starting out, it can be tempting to try and draw new customers in with low prices. However, this can be a deadly mistake, meaning you never earn enough to really get yourself off the ground.But how should you work out how much to charge for your services? Unlike companies that sell products, working out the material value of your services can be tricky.There’s no secret formula to deciding what your services are worth. That said, the following tips can help you draw up a decent estimate.

Determine your hourly rate

Calculating your hourly rate can, in certain businesses, be an effective way of charging for services. To estimate your hourly rate, you first need to decide what you want the business to turn over this year.Say your target is $100,000. Within that total, you need to account for all your business expenses, including all salaries, overheads and tax, and factor in profit too.Next, decide how many hours you and your employees will work each week, and minus any holiday.At the end of this calculation you should be able to work out roughly what your business’s hourly rate is.

Charge a fixed price

Charging a fixed price for your service has pros and cons. If you end up taking a lot longer than anticipated to do the work, you might be disappointed. On the other hand, as you get more experienced, you might be able to complete the job a lot faster, making the business more profitable.

Competitor prices

While it’s not best practice to focus too much on your competitors’ pricing (because you want customers to see you as unique, not cheap), it’s worth keeping in mind roughly what others in your space are charging. If, for instance, your competitors have all raised their prices, you could be doing yourself a disservice by staying low.

Perceived value

Ultimately, people will only be willing to pay what they feel is a fair price. You need to do some market research to get an idea of what customers are willing to pay. Win customers over through a great customer experience and build trusting relationships with them.Pricing your products and services is not an exact science – the most important lesson to learn is stay flexible, constantly reviewing whether your current pricing model is working for you. Good luck!


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