How to price your services to attract your ideal clients

Best Pricing Strategies Tip jar with pay as you wish

Have you ever had to sell your property? There are two camps as to whether you use an agent for their expertise or just to fill in the paperwork. For example, if someone uses an agent as an expert to help them price their property for sale. The agent would hopefully have done their research, know what the market value is, would know how much previous similar properties have sold for and can advise the seller as to how much to price their property to make a sale, alternatively if the seller chooses to not listen to the agent and considers pricing their own property without researching the market, they often think how much they paid and how much they want to make and pick a number. In most cases, those properties struggle to sell, eventually have to lower their price.

Pricing your products and services is one of those hit and miss strategies. If you set your prices too high you might price out your ideal customer and miss out on valuable sales. But if you set them too low, you could be seen as less authentic and miss out on valuable revenue. Unfortunately, determining the price of your product or service as a business marketing strategy is often skimmed over with most Entrepreneurs and business owners looking at the cost of their products and their direct competitor’s rates - then tweaking their own selling price by a few dollars thinking it'll keep them competitive. The problem with just using this strategy alone is your customers buying decision will also be based on what your competitors' price is. And when your competitor lowers or raises their price you will have to.

Therefore your best pricing strategy should maximize both your profit and revenue and while the cost of your product and your competitors' pricing are important factors, they shouldn’t be at the centre of your pricing strategy.

Let's look at a few

1. Competitive

Competitive pricing or competitor-based pricing focuses on the existing going rate or market rate for a company’s product or service. It uses the competitors’ prices as a benchmark.

If you choose this pricing strategy you can price your products slightly below your competition, the same as your competition, or slightly above your competition. For example, if you sold a website automation software, and your competitors’ prices ranged from $29.99 per month to $59.99 per month, you’d choose a price somewhere between those two numbers.

Businesses who compete in a highly saturated market may choose this strategy where even the slightest price difference may influence their customers.

2. Cost-Plus

A cost-plus pricing strategy (also known as markup pricing) is commonly used by retailers who sell physical products. It is based on how much profit you would like to make and focuses on the cost of producing your product or service and adds a fixed percentage to your product production cost. For example, let's say you sold bags. The bag cost $25 to make and you want to make a $25 profit. You would, therefore, set your price at $50 which is a 100% mark up.

3. Freemium (A combination of the words “free” and “premium,”)

A freemium pricing strategy is when companies offer a basic version of their product for free hoping that users will eventually pay to upgrade or access more features. This pricing strategy is becoming more commonly used by SaaS companies offering the customer a “free peek” for a limited period, into a software’s full functionality whilst also building trust before the customer commits to a full purchase. Customers tend to like this strategy if they feel they are ultimately getting something of value. The full price often has a low barrier to entry that incrementally grows depending on the additional features and benefits offered to the customer, typically using a subscription base that allows the customer to choose the best option for them.

If you sell a physical product this strategy is similar to the idea to try before you buy where companies deliver your product with a no quibbles return policy within 7 days.

4. High-Low (discount pricing)

The high-low pricing strategy is commonly used by retailers where their products and stock are constantly changing such as clothing, furniture, music etc.

A company will initially sell its product at a high price but lowers that price by using discounts, clearance sections and year-end sales when the product drops in novelty or relevance.

Sellers tend to like this strategy because they have the ability to clear stock quite quickly. However, the downside of this pricing strategy is when customers choose to wait for a discount day ie: Black Friday or New Year Sales, rather than buy at a higher price. The seller inadvertently ends up having to discount their stock more often to get rid of their items.

5. Hourly

Hourly pricing is commonly used by consultants, freelancers, contractors, and other individuals who provide business services. It is essentially exchanging time for money. The biggest downside of using this strategy is when clients equate the price to the time spent rather than the value or experience given.

6. Project-Based

A project-based pricing strategy is the opposite of hourly pricing — charging a flat fee per project instead of a direct trade of money for time. It is also used by consultants, freelancers, contractors, and other business services providers.

Project-based pricing may be estimated based on the value of the project or the return on investment or perceived possible value for example if a consultant implements an operational strategy that brought in $10,000 how much would the client be willing to pay?

7. Bundle

A bundle pricing strategy (Accessorising) is when you offer two or more complementary products or services together and sell them for a single price.

For example, if you sold a phone you could add a phone case and charger and price the bundle at a slightly higher price. Companies such as Nintendo use this strategy when selling their games consoles - they include several games as part of the bundle. When using this strategy you need to make sure that the products complement each other and are seen as something the customer would normally buy.

8. Psychological

Psychological pricing targets human psychology to boost your sales.

There are a variety of known strategies, for example, The "9-digit effect", where pricing your product at $99.99 (which is essentially $100) customers perceive this as a good deal simply because of the "9" in the price and rather than rounding up and thinking they are spending $100 they round down and think they are getting a product worth $100 for less with sellers able to promote the deal as being below $100!

Other psychological pricing strategies include placing a more expensive item directly next to another item - with customers perceiving the lower-priced as being in the same offering as the premium. Apple uses this in its good, better, best strategy where it uses a premium pricing for customers who want all the "best" features and are willing to pay the premium whereas customers who are more price-sensitive can trade some of the features for a lower-priced generation phone with the same confidence that they are buying an Apple product.

Using fewer syllables in your price for example, when you read $56.79 out loud your brain automatically thinks it's expensive when compared to $62.90 just because you have to pronounce each digit.

Getting rid of the comma is another trick, $1,400 makes people think of a higher price than $1400.

And companies often write "You saved" on their adverts, receipts and website to make the customer feel like they got a deal, For example, Shoes priced at $20 can be advertised as "Buy two and save $15" When in fact you've just spent $40 for 2 shoes (1 you might not wear) rather than just spending $20.