If you own a service business, and you want to make more money next year, take a look at your pricing structure.
If your prices are too low, you’re probably working a lot of hours, but not necessarily making a lot of money.
If your prices are too high, you’re probably working very few hours, which also means that you’re not necessarily making a lot of money.
Find that sweet spot for pricing your services, and you’ll work a reasonable amount of hours and be well-compensated for your work.
Below are the most common pricing models for services offered by small businesses.
Hourly Rates For Services
If you own a service business, you can charge by the hour, and you can vary that rate according to the type of service you offer. For example, if you’re an accountant, you might charge $40 per hour for simple bookkeeping tasks, but $150 an hour for strategic work or tax planning.
If you decide you want to charge by the hour for your services, it’s important to factor in your overhead expenses and the time no one pays for.
Here’s an example of pricing by the hour for a service business:
If you’re a consultant, and you want to make $5,000 per month (before taxes), if your overhead expenses are $1,000 per month, you’ll actually need to bill clients $6,000. Overhead expenses can include: rent, marketing, professional development and fees, phone, etc. Click here to download a free small business monthly budget worksheet for more details.
If your hourly rate is $100 per hour, you’ll need to bill 60 hours to breakeven, which roughly translates to 15 hours per week, which is a reasonable goal. As a rule of thumb, figure that if you want to work 40 hours per week, you’ll actually only be able to bill 20 hours. Why? Because of the “time that no one pays for.”
These are the hours that you’re working or have set aside, that aren’t actually being billed to clients. The hours can include travel time, canceled appointments, gaps between appointments, and free consults. And the hours also include all of the other tasks you need to do to keep your business running, including: marketing, networking, bookkeeping, professional development, etc.
Flat Rate For Services
You can charge a flat rate for your services, but that rate should still be based (at least loosely) on your hourly rate. For example, if you’re a plumber, you could charge $135 to install a garbage disposal. If your typical hourly rate is $90, the garbage disposal should take 1.5 hours to install, give or take. Customers and clients like flat rates for services, because the prices are guaranteed. And once they’ve agreed to the price, they won’t care how long it actually takes you to complete the service. In the plumbing example above, it’s highly unlikely a customer would complain if you finished your work in an hour or less.
Ranges For Services
When giving a quote to a potential client, don’t be afraid to give a range. This protects you and the client. For example, if you’re a web developer who normally charges $100 per hour, and you’re bidding on a website development project, but unsure how long the project will take, you could give the client a range, say $1,200-$1,800, which would translate to 12 to 18 hours.
No matter what, the client won’t pay less than $1,200, nor will the client pay more than $1,800, regardless of how much time you put in.
Using a pricing range can be extremely helpful if you’re not sure of the scope of the project and/or not sure how much the client’s input and/or changes will impact the scope.
Packages For Services
Offer your services in packages, and you’ll offer customers or clients a fixed price, and still be able to make a good hourly rate. For example, if you’re a videographer who specializes in making a record of people’s possessions for insurance purposes, if you try to charge $100 per hour, people might balk. But if you charge a flat rate of $300 (for work that can be completed in 3 hours), they might not give the fee a second thought.
Bundling And Unbundling Services
If you do offer packages, think about offering clients the option of bundling or unbundling your services. Be flexible enough to adjust your pricing if someone wants to add or subtract a service from one of your existing packages, and, in all likelihood, you’ll land more business.
How much money do you want to make? A small business coach can help you price your services so that you can reach your goals. Schedule your free consultation with one of our small business coaches, or e-mail us at firstname.lastname@example.org.
Click here to learn about how to price the products in your small business.
Please note: We provide coaching and consulting services for small business owners in Denver, throughout Colorado, and the U.S.