Pricing for Profit in the Service Sector: What You're Overlooking

Welcome to Live With The Pricing Lady.

I'm Janene, your hostess.

This show is all about helping you build a sustainably profitable

business while making an unbelievable impact on your world.

Learn from my 20 years of experience and from my guests as we discuss their pricing

challenges, failures, and successes.

Pricing is a way of being or behaving in your business.

My mission is to help you confidently charge for the value you deliver.

Pricing is either hurting or helping your business.

Let's make sure it's helping you reach your dreams.

In this episode of Live With The pricing Lady, we take a look at what you are

overlooking when it comes to pricing for profit in the service sector.

Sit back, relax, and enjoy the episode.

As entrepreneurs, we strive for financial freedom, but how often have you

overlooked the power of pricing when it comes to achieving your business goals?

Hey, there it is.

Janene Liston, and you are on Live With The pricing Lady, the podcast.

Today I want to talk about pricing for profit in the service sector,

what it is that you are overlooking.

There are certain default modes that people go into when they're setting prices

in the service industry, and I want to share with you some of the things that

you should be looking at that will help you to achieve your goals more easily.

pricing is there to help you achieve your business objectives.

In fact, when it comes to profit, which should be one of your main

objectives, not always the most important, but it definitely is going

to be at the top, towards the top there.

Meeting those profitability needs, pricing is there to help you do that.

Now, if your pricing strategy is not set up well, it can

hinder you from doing that.

We wanna make sure that you're looking at and doing the right thing, things so that

your pricing strategy is actually helping and making it easier for you to meet your

business objectives like profitability.

Many service providers struggle with pricing, especially women.

Women are good at undervaluing their expertise or simply saying,

I don't care about the money.

Is another thing I hear very often from women.

They're also more likely to just copy what everybody else is doing without

considering their unique strengths.

That is the challenge that many of you are be faced with, and I'm gonna

share a few things with you today that are gonna help you be able to take a

step forward in your pricing so that it helps you in your business and that

it's not so difficult for you to do.

Let's start by taking a look at some of the common pricing

pitfalls related to setting prices.

The first is competitor comparison.

Now, I say this with a little bit of love and and laughter, but

typically service-based businesses, when they go to set their prices,

they go something like this.

We do this really cool thing, or I do this really cool thing, everybody

else is charging about this much.

I'm new, so I'll charge a little bit less.

And that is the extent of what they're doing to set their prices

and that is not going to help them.

It is actually going to limit what they can do and it is going to most likely

leave money on the table because you're not thinking about your customers,

their needs, what they value, and how what you offer and your uniqueness

brings value in terms of what they seek.

Competitor comparison, you want to understand your competitors, but very

rarely in my experience, does it make sense in a service-based business just

to copy what everybody else is doing.

You want to be more precise than that.

And if you are doing competitor based pricing, you want to make sure that

you're comparing to like competitors and competitors that are successful.

So you need to understand if and how profitable they are, if you

can, because for all you know.

Their prices may not be set up for success.

They may be targeting different customers or have different cost basis than you do,

and if you adopt their pricing strategy and your business is not the same, then

chances are it's not going to work.

The second pitfall around price setting.

,is a two-parter.

I call it the "fear of", there's two fears that really get in people's way, and one

is the fear of being perceived as greedy.

So if you talk about pricing, if you focus on profit, you know, oh

my gosh, is everybody gonna think I'm a greedy money monger, right?

That's one fear that definitely steers your behavior in the wrong direction.

And this is where I hear a lot of people say, oh, Janene, I'm here.

I want your help.

But I don't really care about the money, and my response to that is

you have to care about the money.

As a business owner, you have to care about the money, about the profit.

Now, I'm not talking about chasing after profit at the expense of your customers or

trying to take advantage of people, but I am talking about having an understanding

of your profitability and how your prices are going to help you achieve that.

Now the second aspect of this fear of concept is the fear of losing clients.

So there's this fear that if you set the price too high,

then people are gonna run away.

And what happens is you tend to price too low, and it has the same

effect as pricing way too high.

It steers customers away from you.

These two fears are not helping you.

What you can do to counter them

- focusing on having a profitable business does not make you in

any way, shape or form greedy.

And so you need to find a way to disconnect focusing on those things

and this sort of perception that you have that people are going to

assume you're greedy because it.

Does not make you greedy, in my opinion.

It makes you smart.

I think I even have an episode on that or a little video clip

somewhere on pricing makes you or profit makes you smart, not greedy.

When it comes to losing clients, yes, no matter what price you set, whether

it's high, it's low, it's in the middle, there will always be people

who say, no thank you, and that's okay.

Your job is to find the ones who want to pay that and they wanna pay a fair price.

And as I said before, a fair price is one that reflects the value of your offer.

That enough people in your target group are willing to pay for it, and it

has to bring you a reasonable profit.

And sure you may have clients that turn you down even when you have a price that

meets all those needs and, but it's not necessarily because of the price, it's

actually because they're not interested or it's not a priority right now or whatever.

You kind of have to stop being afraid of losing clients and just focus on

getting the right clients in the door.

The third and last pitfall of and when it comes to price setting and

service-based businesses is overly being overly focused on time.

I like to say time is just the wrapper your services are delivered in.

And I say this because we don't buy the milk for the carton.

We buy it for the milk.

You don't buy the cereal for the box.

You buy it for the cereal which you're going to consume.

And it's a similar concept when it comes to pricing.

They're not buying it because of your time.

They're buying it for the expertise that you have.

Yeah.

If you're an expertise business.

Usually most services, some form of expertise.

So what happens is.

When you focus on time, then your customer focuses on time, and you're

both overly focused on something that isn't bringing added value to the

table, and that limits your pricing.

The second part of that in a service-based business is that time-based rates do not

grow with you as your business grows.

Let's say.

In the beginning of your business, some things take you more time, right?

And so customers are kind of paying for that upfront.

But as you become more efficient in what you do and get results faster, your

customers actually end up paying less, not more for a more valuable service.

That's what I mean by it doesn't grow with you.

So those are three pitfalls that I'd like you to take a moment.

You can even stop this and think about it.

Are you in the trap of any of these three pitfalls, competitor comparison, the fear

of, and that's greed and losing clients, or are you overly focused on time?

Let's look at some key strategies for profit-based pricing.

If you follow me, this will not be a surprise.

But the first one is value-based pricing.

So value-based pricing is rooted in understanding customer value,

so your prices will reflect the value that your services deliver.

To clients, it's not just about what you charge, but how it

aligns with the benefits and the economic value they get out of it.

For example, a boutique marketing consultancy that helps a client

increase re revenue by a hundred thousand could charge a fee that's

aligned somehow with that value rather than just charging hourly rates.

Now there's many different forms that that could take.

Would you just charge them a hundred thousand?

Probably not.

But you'd want them to get a return on their investment in a relatively,

in a reasonable amount of time.

And so your pricing might somehow reflect that

value-based pricing.

As I said, is rooted in understanding the customer, so you have to be clear about

who you're targeting and you'll want to understand what it is they value most.

Another example I made an offer to a client who wanted me to do some training.

When I sent the offer they said, okay, that's outside of our budget.

They wanted me to do it for half of the budget.

So I thought, okay, let me have a look at this and see what I could

deliver for half that budget.

And I thought, well, the content is all relevant and important, and

I didn't feel taking any of it out was going to do them much good.

But I decided, well, I can deliver the, the training, but without the slide decks.

The slide decks take a lot of time for me, so it's a labor

intensive thing for me to produce.

More importantly, and remember I said more importantly here, more importantly,

they are of high value to the customer.

Because they can use those slide decks again and again to re train

other people in the organization and they don't have to produce them.

They get my expertise, not just in a meeting, but they get it written down

and structured in a very specific way.

I went back to them, I said, yeah, sure, I can do it for that budget, but

I will not deliver slide decks with it.

There was a lot of value in those slide decks.

And then being able to give them the choice of do they want the training

with the slide decks or not meant that they had to make a decision

about what was most valuable to them.

The second key strategy for profit based pricing is project based pricing.

These are fixed deliverables, so charging for specific outcomes can provide clarity

and stability for both you and the client.

So rather than saying, you know, this'll take me five man days and I'm gonna

charge you, you know, X per mandate.

You say, I'm gonna do this work.

I'm going to charge you a package fee for this.

For example, a career coach, rather than just offering a, package with a

number of sessions, and a price per session would instead offer a three

month leadership program at a fixed price based on the transformation.

That the client is seeking or the transformation delivered is

probably a better way to put that.

So again, it's very fixed on certain deliverables.

If you were helping somebody, find a job in the leadership and executive space, and

it could be different milestones related to their resume, related to interview,

training related to how to negotiate.

Those could be the types of milestones that you might be looking at.

Project-based pricing, again, you'll see a, a trend here whether we're

looking at value-based or project-based.

We're really setting the prices based on the value.

Now the third one is a little bit different, but can be very helpful,

and that's retainer agreements.

The value that retainer agreements bring is stable income streams.

A retainer is offering ongoing services.

You are doing a social media package, right?

And you might say, okay, I'll do these three things each month for you, for

a fixed price, you pay in advance for x number of days of my work.

If there's that much work to do, then we use it.

if you don't give me enough work to fill that time, then you lose those days.

But a retainer agreement usually implies that they pay upfront each month or each

time period, and then you block that time out in your schedule to work for them.

That's a way for you to more easily manage your workflow, which is one of the

reasons that it can be, quite beneficial.

It gives you a more predictable income because it's usually based on some

sort of monthly fee, and it encourages long-term relationships with clients.

So this is something that's often used in freelancing.

For example, a boutique HR consultancy offering a monthly retainer package

for recruitment and compliance support.

That's one example.

Those are three strategies for profit-based pricing.

Now let's take a look at three overlooked aspects of pricing that

you're going want to be focusing on.

The first one is confidence, and I can't emphasize enough how important

it is for you to feel confident.

And if you don't like that word, you can use certainty how that you feel

certain about the prices that you have.

It's crucial that you feel that, because if you don't feel that

your customers won't either.

And this confidence comes from understanding your customers, your

offer, the value that that offer brings, and I really mean economic value here.

I'm not just talking about, oh, it saves you time.

How much time does it save you?

And what does that reflect in terms of a monetary value?

And you have to be comfortable communicating those prices and that

value effectively to your clients.

This confidence makes a big difference.

So a lot of times when I meet people I'll ask them questions about their business.

Sometimes I'll even ask, oh, what do you charge?

And oftentimes when I get an answer from people, it'll be $2,000?

Like they're asking me.

That intonation at the end is a question.

And I'd be like, oh, don't do that with potential clients.

Right.

But it, a lot of times when people don't feel confident about their prices, they

don't understand why that price is the right price for their business, then

they will put those little inflections in there, or you know, use words that sort of

lessen the impact of that communication.

And that's not what you want, obviously.

That's why that impor it's so important for you to feel confident

or certain around your pricing.

The second overlooked aspect of pricing is communicating value.

Clearly, being able to articulate the ROI, the return on investment

of your services will help clients understand why the investment you're

asking them to make is justified.

Yeah, that's really important.

That's why I always say value first.

You know, communicate the value first and then deliver the price

because the, the price is only meaningful in the context of value.

The last overlooked aspect of pricing, especially in services here we're

talking about is avoiding scope creep.

As you shift away from time-based pricing, one of the reasons that people don't make

the shift away from time-based pricing is they're worried about, but what if

it takes me longer than I estimated?

That is an issue.

But it is actually usually up to you to set the clear boundaries

that prevent that scope creep.

When you shift from hourly based prices to package based prices, you want to

set very clear boundaries about the ways of working, about the timeframe,

about what the deliverables are.

You want to set boundaries around those things to prevent.

Additional unpaid work from eroding your profitability.

It also means that sometimes when clients want additional services, you

have to stand up and say, okay, that's not part of our original contract.

Let me make you an offer for that.

Right.

So you have to have the confidence to be able to communicate the value

of that additional investment.

Oh wow.

That was really funny.

I didn't mean to do that, but it worked out perfectly.

So those are the over list looked aspects of pricing for profitability in services.

Let me give you a few tips before we wrap this up.

First of all, one thing that you can do is conduct a value audit.

A very simple one.

Look at each offer individually, understand what your customers

value most in that offer, what it is you deliver in terms of economic

value, and understand if your price or how your price reflects that.

For example, you might take your signature offer and look at, okay,

why do my customers love this?

And what is it that they really get out of it?

What am I delivering?

That is, you know, reflecting that value that they're seeking.

And does that align with my price?

The second thing you can do is you can test out new pricing strategies.

Experiment with different models.

You know, try a little bit of project-based pricing with another, offer,

something that suits a retainer better.

You could trust out the the retainer offer and see how that changes

customer's interest in it, your ways of working, how you like to work.

You may find that you don't like retainer pricing at all, or you

may find that you absolutely love it, but you'll never know if you

don't test some of these things out.

And the third tip, and I have to give this with a caveat, is to seek feedback.

It's very important about who you seek feedback from.

Engage with trusted clients to understand their perception of

your value and your pricing.

Clients are a good resource also, if you have a business mentor.

Seek feedback from them.

Maybe they can give you some additional information.

Just be careful about seeking feedback from family and friends.

Especially those who don't understand your business or who don't come

from an entrepreneurial background.

I had like to wrap this up real quick here.

Today we've taken a look at a few different things, but all of it

has been related to unlocking your financial financial freedom by

helping you price for profitability.

We took a look at some of the challenges that people face and the

pitfalls that you may find yourself in when it comes to price setting

in your service based business.

Then we looked at three key strategies for profit based pricing.

And then we look at some of the overlooked aspects of pricing, like

confidence, communicating and scope creep.

And then I gave you a few tips there to help you use start

shifting things in your business.

It's important for you to remember that pricing is more than just a number.

It is about reflecting the unique value that your offer brings and

communicating it effectively.

As I said before, pricing is rooted in an understanding of the customer because

they're the ones determining the value and the value is going to tell them whether

or not that investment is worthwhile.

Empowerment is really important.

So by adopting strategic pricing practices, by being more deliberate

about how you're setting and using pricing in your business, you can

build a more profitable and sustainable business that truly reflects the

value that you want to create.

And it will help you to be there with that business, delivering those

wonderful things that you deliver to your customers for the long

term, which is what we all want.

Thank you so much for joining me today.

I've enjoyed preparing this episode for you and I hope that you've

gotten some great insights out of it.

As you know, I have a program called the Fair Price Formula

and you are welcome to join that.

You can head on over to The pricing Lady dot com slash set my prices to

find out when the next cohort is.

I would love to have you join us.

Thank you for listening to this episode of Live with The Pricing Lady, the podcast.

If you enjoyed the episode, rate, review, and subscribe to it, then share

it with your friends and colleagues.

I love hearing back from you listeners.

If you've got comments, questions, or topic ideas, go on over to thepricinglady.

com and contact me there.

Not sure where to start when it comes to improving pricing and profits?

At ThePricingLady.

com you can download a copy of my Self Assessment Pricing Scorecard.

Find out where it's going well and where you can begin improving.

Or just simply book a discovery call with me.

There we can discuss what's up with pricing in your business and

how I might be able to help you.

Thanks once again for joining.

Remember, pricing can hurt or help your business.

Let's make sure it's helping you reach your dreams.

See you next time and as always, enjoy pricing.