How to Price a Service-Based Business Like a Boss

Courtney Courtney

How you price a service can make or break your business. Price your services too low, and you’ll never turn a profit. Price them too high, and you’ll scare away potential clients.

Or so you might think. There’s actually a lot more to pricing your services than going high or low. Choose the right pricing strategy, and you can attract more clients and rapidly scale your business.

Read on to learn exactly how to price a service and make your service-based business stand out from the rest.

3 Ways to Price Your Services

No matter what way you slice it, there are three main strategies you can use to price a service-based business. The one you choose will depend on what kind of services you offer.

Strategy #1: Hourly Rate Pricing

The simplest way freelancers and service-based businesses can charge is by the hour. Your potential clients will also be familiar with this model since many regular employees earn money at an hourly rate.

Let’s look at an example of hourly pricing in action:

Dugan Prep‘s three tutors charge $120/hour, $100/hour, and $80/hour respectively, based on their experience. Hourly pricing makes good sense in this situation since they’re only offering their time and knowledge as a service.

It’s also a smart move to offer three tutoring options at different rates. Having one rigid hourly rate might turn some budget-minded people away.

Strategy #2: Package Service Pricing

When you offer package services, you charge a flat fee for a task or combination of services.

For example, a freelance writer can write a blog post for $200, no matter how long it takes. That’s a package service. That same writer can also perform keyword research, write a blog post, offer two rounds of creative revisions, and upload it to WordPress for $450. That’s another (more valuable) package.

Let’s look at an example of package pricing:

Package pricing example

The Yes Girls offer four package options, including the two shown above:

  • Day-Of Coordination
  • The Essential Package
  • The Absolute Package
  • A la carte services

Package services are a smart idea for this type of business because people seek out wedding planners to unload the burden of event planning.

They don’t want to hire someone to “help with wedding planning for X number of hours at X rate.” They want to tick tasks off their list: find a venue, hire vendors, coordinate rehearsal, and more. Package services highlight value and “bundled services” for customers.

Strategy #3: Combination Pricing

Combination pricing is when you offer your services at an hourly rate and as part of a package.

The Trubody fitness consulting business is a good example of combined pricing. They offer a variety of coaching packages that include a certain number of one-on-one consulting hours every week.

TruBody coaching package service pricing

Combination packages are a smart idea when you know your clients want a certain amount of one-on-one time with you, whether that’s in person or via phone or video chat. If you offer package-only services, it’s difficult to show customers how they’ll get that value.

Which Pricing Method is Right For You? 

The method you choose is going to depend on the kind of services you offer. If how much time you spend providing your service is important for customers, then an hourly rate makes sense. Tutors, dog walkers, and babysitters are good examples of this.

Otherwise, package-based services are almost always a better move for your business. Package deals give you an opportunity to offer more value to your clients, but not necessarily more of your time.

Think back to the freelance writer example mentioned before. It could take the writer four hours to write a blog post, and only an extra hour to do the keyword research and upload it to WordPress. They’re able to charge $150 extra for those simple tasks, and people will pay it because they want the value.

Keeping your pricing as hourly-only also inherently limits your ability to grow your income. There are only so many work hours every week you can fill.

And even if “time spent” is an important part of your business model, you can still take advantage of package services using a combination method. Say you’re a dog-walker. Which service description sounds more valuable?

  • For $25, I’ll walk your dog for one hour.
  • For $35, I’ll walk your dog for one hour, feed them, administer medicines if needed, clean up accidents if needed, and put your dog’s favorite show on TV before I leave.

Obviously option two! In reality, any dog walker would do these things as part of their service, but when you spell it out in a combined package deal, customers are usually happy to pay a higher price.

3 Tips on Pricing Your Service

Ready to price? Follow these steps to come up with your numbers.

1. Start with Cost-Plus Pricing

When first setting your prices, it’s always a smart idea to calculate the cost of providing your service, then adding on your desired profits.

But it’s easy to overlook work-related costs when you freelance and under-pay yourself as a result.

via GIPHY

If you’re a freelance designer, for example, you need to factor in a portion of the cost of your design software. There’s also your WIFI, the tools you use to market your service, and the cost of your home office. And don’t forget your earnings are all before taxes!

Check out this helpful formula and example of how to calculate cost-plus pricing.

2. Check Out Your Competitors

Next, consider what other people in your service niche are charging to keep your prices competitive.

If you offer your freelance service on Upwork, you can view competitor bids before submitting a proposal if you pony up for the Upwork Plus Membership Plan.

If that’s not in the budget, you can also scroll down to the bottom of a job post and see the client’s work history and feedback. That will show you how much this client has paid for similar work in the past:

Upwork job feed example

Don’t make the mistake of comparing yourself to people who don’t offer your level of service or expertise. You’ll always find people with no experience offering your services for dirt cheap, but they’re not really your competitors. You offer extra value that justifies a higher rate, as long as you illustrate it.

3. Illustrate Value

The most important thing you can do to encourage clients to pay the rate you want is to illustrate your value. When you set up your website or profile on a service platform, look for opportunities to stand out from your competitors.

Luckily, platforms like Care.com and TaskRabbit encourage and prompt you to do this. Take a look at this Care.com housekeeper profile as an example:

Care.com profile

She’s a housekeeper in Austin, Texas who charges $20-30/hour. That’s a common service at a common price. But she makes herself stand out by highlighting value on her profile: She has her own cleaning supplies and equipment, and is willing to travel.

She’s also willing to help out with other household tasks:

Care.com screenshot

Use the prompts of your service-based platform and your creativity to illustrate the real value of your services. The better you do this, the more you can charge.

Pricing Takeaways

When you first start a business, pricing your services is one of the biggest challenges. Over time, you’ll get better at determining the labor involved in your work and the value you offer in your niche, and adjust your rates accordingly.

For now, pick a pricing model that makes sense for your business and use these tips to set a competitive price:

  • Choose a pricing model that makes sense for your business (hourly, package, or a combination).
  • Consider your costs and competitor pricing.
  • Always show value.

Don’t let pricing be the obstacle to launching your business. Know your worth and be confident in the price you set. Good luck!

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