How to price your service based offering

It’s difficult to put a price on something that doesn’t involve any raw materials or that produces a physical object at the end, so where do you start?

Firstly, what is a service based offering? The easiest way to describe it is something that isn’t tangible. For example, a bookkeeper, a cleaning service, a consultant or indeed a videographer. All providing an intangible act that often doesn’t result in a tangible ‘thing’ that the customer is buying.

Brand Calibre provides a service and pricing our offering is a challenging subject that I’ve toyed with for quite some time. Historically we priced this offering based on the amount of time we spent working on these projects. This eventually created some problems for us:

1. Limited Scalability

Because we were charging based on the amount of time we worked on these projects, it meant that the opportunities to become more efficient and in turn profitable were limited. The only way to scale would be to take on more staff to fulfil the hours we were selling, this made it difficult for profit margins to accommodate the infrastructure change that this would bring, which hindered growth because there wasn’t enough profit in the business to do it.

2. Misplaced incentive

When a company charges for the amount of time they take to do something, their incentive is to take as long as possible to do this because it means they can bill for that time, and thus make more money. This incentive is in the favour of the supplier taking longer to do their job. In my opinion, this means the incentive is in the wrong place. To give an example, a mechanic tells you it will cost £20 per hour to fix your car, but ‘estimate’ it ‘might’ take 8 hours. Are they incentivised to fix your car in 6 hours? The answer is obviously no, if they take their time, they make more money. So the customer receives a slower service and it costs more money too boot.

When you offer a service based product (in our case, video production, animation and photography) you should consider where the incentive is in your offering. Ultimately you’re selling to your customer, so if you want them to feel happy about purchasing from you, then the incentive should encourage you to provide a quick and efficient service to them at a cost they are happy with.

Stop selling time

Think about the value of what you’re offering and how much that is worth to your client. If you’ve spent 20 years in your industry building up a wealth of experience that allows you to do something in half the time of someone new to the game, does that mean you should charge half the price? If anything, you should charge double. That experience and efficiency is worth something to your customer, so you need to realise that.

You can’t win every battle

A good acquaintance of mine once said: double your prices, you’ll lose half your clients but you’ll double your productivity. That’s a bit extreme, but the principle is sound and it gives some credence to the fact that you can’t please everyone. If the price you’re quoting seems too high, assess whether you think you’re selling yourself too short, if so then simply accept defeat and move on. At least you’ll have time to work on finding and facilitating those more appropriate projects. Set yourself a lower limit and try to stick to it as much as possible.

If customers want your offering the price is less important

That sounds whimsical, but there’s some theory behind it. If customers need your product, then the chances are they’re going to look for the best value or cheapest offering. If your customer wants your product then they’re much more likely to splash out a little more on it.

Think about the things you need; printer paper, a phone charger cable, petrol, tin foil, etc… often we go for the cheapest or best value offering because it’s a necessity.

Now think about the things you want; chocolate, wine, new shoes, a ski trip etc… you don’t need these things, and often you’re not going to opt for the cheapest option available either.

Apply this to your service and how you sell it; make your customers want what you’re offering. If you can do this, then it will become easier to price your offering based on it’s perceived value and your customers will be happier about paying for it.

How do you find that magic number?

I come bearing bad news, but there’s no magic formula for pricing your service. Ultimately, it’s as valuable as someone is willing to pay for it. Value very much depends on who is making the purchase, so do your best to put yourself in your customers shoes to make a guess as to how much you think they would pay for what you’re offering.

Ask yourself who you want to pay for your service, imagine what that specific type of customer would be happy to pay, establish what that market looks like, do some research around other similar competitors and choose a price that fits in with the sort of spend they’ll be expecting. It’s important to remember that price point is a spectrum that spans from budget all the way up to super-luxury. You need to decide where you fit on that scale and price yourself accordingly.

Try it, see what the uptake is and refine your offering as you progress.

Always remember that the price is only one of many factors that contribute to a customer buying from you, perhaps you don’t need to lower your price, rather you need to increase your customers desire to want what you’re selling.

- Luke