Money Talks! How to Price Your Product or Service Effectively
By Nisha Apr 30, 2021
If you want to succeed in business, one of the best things you can do is price your product or service fairly and competitively. With so many pricing strategies available, it can be difficult to determine exactly how to price a service or product.
Pricing too low can be detrimental to your revenue while pricing too high can deter customers from frequenting your business. Below, we discuss everything you need to know about how to price a product or service effectively.
How to price a product—5 strategies for success
Once you’ve started a small business, it’s important to set fair prices for your products that earn you revenue. While there are many tactics that come into play when determining your pricing, most are rooted in psychology.
When determining the right price for your products, there are five top pricing strategies that you can use to ensure your charging the right amount.
1. Cost-based pricing
Cost-based pricing is a pricing strategy that businesses use to set product prices based on their cost of production, manufacturing, and distribution, as well as branding and marketing costs.
Using this method, the overall cost of the product is determined by adding a markup—a percentage increase from the manufacturing cost. While the exact markup amount varies from business to business, 50% is typically a good starting point.
Because the cost of branding and marketing needs to be considered when setting prices using this method, finding affordable ways to market your brand and your products can go a long way when it comes to increasing your revenue.
Using tools like a logo maker can help to dramatically lower your branding costs and assist you in increasing your product margins!
2. Competitive pricing
When using a competitive pricing model, you strategically set product prices based on what your direct competitors are selling the same (or similar) items for. For example, if your competitor’s product is priced at $40, you might choose to set your pricing higher or lower, while still using $40 as a benchmark.
This is where the importance of branding comes in. If your brand is professional and has a strong differentiator from your competitors (i.e.you offer sustainable products, or higher quality products) your business could sell that same item for $50.
This method works best when pricing products that have been available to consumers for quite some time. This way businesses and consumers have a general idea of the value of these items.
3. Price skimming
Price skimming is a strategy that’s commonly used on high-demand or luxury items. Businesses initially set higher prices for their items, creating the perception that products are high-quality and worth a higher price. When using this strategy, businesses lower prices over time, making the product available to a wider market.
4. Demand/value-based pricing
Demand or value-based pricing uses customer demand to determine price. This strategy considers fluctuations in demand, meaning that as seasonal demand or the need for a particular item changes, so does the price. Demand pricing is often used for products such as clothing and seasonal items.
5. Penetration pricing
Penetration pricing is essentially the opposite of price skimming. When a product initially hits the market, the price is set low to attract buyers and make the product accessible to a broader range of consumers. As the item’s initial sales fizzle out, the price increases in small increments to maximize profits.
How to price a service—4 steps to getting it right
Determining how to price a service can be more difficult than product pricing. After starting a service business, there are several steps you should take when developing pricing strategies for your services.
1) Decide how much you want to make
First, you need to decide how much you want to make. This is the time to dream big — think about what you truly feel your service is worth and how much you’d be happy to earn from what you do. This is your starting point and along with a few other important factors, it’ll help you to determine the best price for your service.
After thinking about your desired earnings, you need to do some research and calculations to see whether your goal is realistic. First, take a moment to calculate your costs. You’ll want to consider the following:
- Your overhead operating costs
- Branding and logo design costs
- Invested time in marketing, business management, and providing services
2) Find out what people are willing to pay
Once you’ve calculated your own costs, you need to determine the perceived value of your services—what people are willing to pay you. The best way to do this is often by shopping around at competitors. Call similar businesses to obtain quotes, ask clients what they’re willing to pay, and research online to find similar services and their costs.
This information, combined with your desired earnings, will lead you to the right pricing model for your business.
3) Determine how to charge for your services
Another part of determining how to price a service is to figure out how to charge your clients. The most common options are:
- Charging an hourly rate
- Setting a project fee
- Agreeing on a retainer if your work is ongoing
How you charge for the services you provide mostly depends on the type of service you’re providing.
While healthcare providers (think massage therapists and acupuncturists) normally charge per service, other professionals that offer long-term services (like attorneys and marketers) may prefer to hold a retainer for services from their clients.
If you work as a consultant or freelancer, it’s often easier to set your pricing once you know your client’s budget. Don’t be afraid to ask for this upfront!
4) Drive value with a great brand experience
The biggest mistake some business owners make is thinking that price is the only factor customers consider when choosing a service provider. Creating a positive brand experience that makes your business stand out among the competition is just as important when it comes to driving revenue and attracting clients to your business. Make sure that in addition to a fair price, you’re also offering your clients the following:
- Unparalleled customer service
- A memorable experience when they work with you
- Attractive branding
- Quality service
Don’t know what to charge? We’ve done some digging and put together a helpful list for you here.
List of service rates for the most common service-based businesses:
Consultant
There are many types of consultants so of course, the type of consulting you do will play a big role in what you charge for your services. While the average salary for consultants is $77,387 per year, different areas of consulting may charge more or less. This number can also change depending on experience. Here are some examples:
Management consultant
- Average salary: $88,080 per year
- Low end: $61,000 per year
- High end: $144,000 per year
IT consultant
- Average salary: $79,380 per year
- Low end: $51,000 per year
- High end: $125,000 per year
Freelance writer
Freelance writers may charge for their services based on a per-word, per-hour, or per-project basis. The average base salary for a freelance writer $88,080 per year. Those with less experience can expect to earn closer to $61,000 per year while those with more experience may earn as much as $144,000 annually.
Photography
Photographers may work on a freelance basis or operate families, or commercial use. Depending on the type of work you do, your service charges may vary. For instance, the average wedding photographer charges $3000 per wedding. Say they complete 15 weddings over wedding season, that’s $45,000 for half the year.
Commercial photographer
- Average salary: $88,080 per year
- Low end: $61,000 per year
- High end: $144,000 per year
Freelance photographer
- Average salary: $45,781 per year
- Low end: $26,000 per year
- High end: $75,000 per year
Life coaching
Life coaches may use a pricing strategy that involves charging clients on a retainer or they may charge per session, or per hour. Coaches generally charge $200 per hour. The average salary for a life coach is $49,652 per year. Those with less experience may earn closer to $32,000 per year while the high-end annual salary for this profession is $113,000.
Makeup artist
Makeup artists generally charge per service; however, depending on who you provide services and the contract terms you have with your clients, charging hourly can sometimes be a better option. The average makeup artist charges $75-125 per person and can make around $49,652 per year.
Less experienced artists can expect to earn a lower salary of about $32,000 while top makeup artists working in the fashion industry earn upwards of $113,000 per year.
>>Check out our guide on starting a beauty business for more information!
Event planner
Most event planners charge per project but those who take on multiple projects for the same client may require a retainer. The average annual salary for event planners is $50,387. The lower end of the salary range for this profession is $34,000 while those who earn most can expect a salary closer to $73,000 per year.
Wedding planner
Most wedding planners use a package pricing strategy, with their level of involvement ranging from low to high as the price increases. Wedding planner packages range from $1800-4000. Less experienced wedding planners might earn closer to $28,000 per year while top wedding planners can earn about $69,000 annually.
Personal trainer
Personal trainers typically charge per session or by package. For most, the average hourly rate is $19.46 per hour; however, those on the lower end of the scale may earn as little as $11.03 per hour. Top personal trainers in the U.S. make up to $51.37 per hour.
Videography
The pricing strategies you use as a videographer depends on who you’re serving and how often you work with them. The average salary for a videographer is $67,073 per year. Less experienced individuals in this profession may earn about $32,000 per year, while those with more experience earn upwards of $98,000 annually.
Counseling
In most cases, counselors price their services on a per-session basis. Most mental health counselors charge between $75-$100 an hour. Top mental health counselors with certain degrees or certificates can charge over $200/hour, especially if working with groups or couples.
Plumbing
As a plumber, you may have some flexibility in the way you charge your clients. While some plumbers charge hourly, others prefer to provide a quote for an entire project. Projects can range from $150 to $5,000+ depending on the size of the job, time commitment, and complexity.
Landscaping
Landscapers typically charge following a similar structure as plumbers; however, some are contracted out seasonally to perform snow removal or yard services and may charge on a monthly or seasonal basis. The average hourly rate for landscapers is $14.13 per hour.
Newer landscapers may earn a lower wage of about $10.25 per hour while those who’ve been in the industry a while often earn closer to $20.19 per hour.
>>Check out our guide on how to start a landscaping business for more information!
Childcare
Childcare providers often price their services hourly, weekly, or monthly, depending on the terms agreed upon with their clients and the frequency of care. Typical hourly rates for childcare workers are around $10.53 per hour. Inexperienced childcare workers may earn a lower rate of around $7.98 per hour and more experienced workers usually earn closer to $15.44.
Florist
Florists often used cost-based pricing to determine the cost of their services. A florist generally charges per service or product. Those who create floral arrangements for weddings, funerals, and other events may also charge on a per-session basis. The average annual salary for florists is $31,386 per year. The lower end of florists’ salary range is $20,000 while the high end is $68,000.
Pet grooming
Pet groomers typically charge by the hour or by the service. The average hourly rate for pet groomers is $12.28 per hour with the lower end of the salary range being $9.66 and the higher end being $20.57.
Time to determine your pricing strategy!
Whether you’re selling a product or a service, your pricing strategies should depend on several factors, including your own cost and the price competitor are charging for similar goods or services. Taking advantage of cost-effective services from Looka that help you create powerful branding tools may reduce your overall costs and help you increase your profit margin as you bring your product or services to market.