Updated: May 20, 2022
Your Pricing Strategy: It’s All Up to You
Most of us had that first job. The one where you stood behind a counter and said things like, “that’ll be $5.42.” The price was pre-set, simple, straightforward. Best of all, the pricing strategy was someone else’s job.
But you’re an entrepreneur now. The numbers start and end with you. You set them. You live with them. You either profit from your pricing strategy or get crushed under it.
When you’re a service provider - like a coach, a trainer, a virtual assistant - a pricing strategy can seem like you’re just grabbing random prices out of thin air and sticking them on a website.
This leads a lot of good business owners to low-ball, just to be on the safe side. It usually ends with long hours, no weekends, and ultimate flame out.
There should be some model to build your prices. But when you’re a service-based business, there aren’t a ton of production costs to use as a template.
For instance, let’s pretend you’re not a coach. Let’s say that you’re a producer. You make - I don’t know - we’ll say candles. To come up with a price, first, you crunch the costs.
How much is wax? What do wicks cost? Shipping? Packaging? You calculate whatever you need to bring that candle to market. Then you pop a tidy profit on top of that and - boom - there’s your price. It’s called a cost-based pricing strategy. And it’s easy peasy.
But you do knowledge work. Inspiration work. And while there’s some hard costs involved, a lot of what needs reimbursement is stuff you can’t put on a spreadsheet.
You get paid for insight, communication, expertise, experience.
It’s hard to quantify that stuff. But quantify it you must. And though you might not feel great about choosing a number...
You gotta get used to setting your own prices, people, and setting them a lot higher.
So how do you come up with a pricing strategy when you’re a service-based business?
In this article, I want to introduce you to the tricky business of creating your own rates.
I want to put some ideas, methods, and questions in your head.
And, ultimately, I want to convince you that you’re not charging enough.
The Hourly Pricing Strategy: A Mindset Minefield
So, let’s talk about that first job again. You probably got paid minimum wage. That was simple math. Your employer counted up how many hours your body was on the property and then paid you for that time.
But now it’s not that simple. If you misapply an hourly pricing strategy here, it can really pummel you. “Hourly billing forces you to work long hours,” says Consultant Susan Trivers. “[It] creates negative cash flow, and puts you in the unenviable position of competing on price.”
But there are industry norms. Some services scream out a “cost per hour” pricing strategy.
So if your pricing strategy has just gotta be hourly to match your market, remember that the rate you choose isn’t about how long you’re sitting in a consultation. It’s about the transformation you offer.
Your pricing strategy should calculate for your expertise, your focus, your education, your experience, your perspective. Not for how long your body was in that chair.
That mindset is a leftover from your days at McDonald’s.
And I promise you, if you think like an hourly employee when you’re setting your rates, the numbers won’t add up at the end of the month.
So when you’re deciding on a pricing strategy, take a step away from your past and think about your future. Where do you want to be? What’s your end goal? How much do you need to meet it?
You only have so many hours in a day. So let’s think:
Consider how much you need to sustain your ideal life.
Divide that by 52 to figure out your weekly gross.
Now divide that by how many hours you want to work - remember that marketing and admin are part of this equation.
And that’s your hourly rate.
Your Yearly Goal ÷ 52 Weeks ÷ Desired Hours Per Week = Your Hourly Rate
My guess is once you do that math you’re going to think - HOLY CRAP! I can’t charge that!
Somebody can. Somebody does. How do you get to be that somebody?
You might want to consider a value-based pricing strategy.
Value-Based Pricing: Charge for the Difference
I don’t know how many of you went to business school, but let’s reminisce a moment about value-based pricing strategies.
Harvard Business Review calls value-based pricing a “method of setting a price by which a company calculates and tries to earn the differentiated worth of its product for a particular customer segment when compared to its competitor.”
Okay, in English, with a value-based pricing strategy you have:
A product. In this case the product is you - your service.
You, also, have:
A competing product. That’s someone else in your industry.
You both do roughly the same service, but...there’s something special that you do. You have:
Something that sets you apart.
Maybe you’re an active listener. You’re excellent with intense people. You speak fluent tech. You navigate ADHD issues really well.
In this kind of pricing strategy, that singular thing is of essential value. To someone.
Figure out what your difference is. What’s your super power? Imagine who needs that more than anything, and build your pricing strategy around it.
Charge for that difference. Fold that into your hourly rate.
Your super power might at first sound like nothing. You’ll think, “ How does that factor into a pricing strategy? No one goes to a school to learn that.” But that’s what makes it valuable!
To someone, that’s the difference they’ve been searching for. Even if they don’t know it yet.
You need to place more value on it.
No, You’re Not Charging Enough
When you’re setting your service rates, you’ll have to consider more than the value of your superpower. You’ll have to understand its perceived value.
What do clients imagine your service is worth? What impression do they get?
Perceived value - as a pricing strategy - is a real thing. And it can feel icky to some heart-centered entrepreneurs. It can bring up images of a con artist.
But a perceived value strategy just means there’s a common language between your own mind and your client’s. It’s an agreement - this is worth so much.
So. When your pricing strategy is to discount your services - out of fear, humility, or discomfort - you’re creating a perceived value.
Your pricing strategy says, “I’m not that good. I don’t know what I’m doing.” And the customer will take you at your word. But they won’t thank you for it.
Your low price is not as comforting to the client as you think.
“Price is often a proxy for quality,” says Dr. Utpal Dholakia, Professor of Marketing at Rice University, “and when you put yourself at the low end, it signals that you’re unsure of your value - or the value just isn’t there. Either can be alarming for prospective clients.”
Look I get it. It’s tricky. But a low-balled pricing strategy isn’t the good deed you think it is. You’re signaling a lack of worth to people who need your work.
Like oxygen, you’re offering something invisible but essential - well-being, health, peace of mind, success, rehabilitation, clarity.
That’s worth a lot more than wax and wicks. It’s priceless. Don’t keep that impression to yourself.
The Pricing Strategy Boomerang
Whatever pricing strategy you use, remember that your rates are more than your paycheck. It’s how you classify your work. Yeah, it affects your clients’ perception of you. But more importantly, it affects yours.
Your pricing strategy is like a boomerang tossed out toward the market that’ll swing back and knock you in the head. It can leave a mark.
So choose a pricing strategy that hits you right. Choose one that lets you know your worth.
Sit down with a pencil and notebook tonight. Do the math. Divide to find your magic hourly rate, then practice saying it to the mirror without barfing from nerves.
Say it like it’s true and reasonable. Because it is.
Run with it. Test it. Live with it. Tweak it. But don’t fear it.
This number is a version of your business.
Choose a number that says you’re proud of what you built.
Did you set your specific goals? Do those goals involve taking your passion and creating a profitable business out of it? I could be the mentor for you.