How to Price Services

May 02, 2014

Services are more difficult to price than goods because they are intangible.  Pricing them requires companies to look at things from a more long-term perspective and understand how customers use and benefit from the services, which can be a challenge.  While you walk away with something when you purchase a good, there is often nothing you walk away with from a service.  Also, you can evaluate the item before purchase when buying a good.  This is much harder and sometimes not possible to do with services.  Services are often evaluated after the fact based on how it turned out. 


One way to alleviate customer uncertainty is offering satisfaction guarantees.  Clients may be hesitant to purchase from a company for the first time.  Providing a guarantee so that the customer does not lose out if they are unhappy can build trust and make people more willing to pay for a service.  This can be especially useful to new businesses that do not have many reviews online and/or people may not have heard much about.


Another option is to develop relationships through your pricing.  Giving customers deals for engaging in a long-term contract and bundling services can entice them do utilize your services.  Having long-term customers will help you get to know their needs better.  Additionally, bundling services will make it less attractive for customers to seek other services you offer elsewhere. 


Finally, regardless of whether you offer satisfaction guarantees, long-term contracts, or bundles it is important to know your costs.  You need to price your services at a rate where you will cover your costs and see a profit.  Additionally, look at what your competitors are charging for similar services.  It is important to be aware of what customers are paying for similar services because that will help determine what they may be willing to pay for services. While it can be a challenge to price services so that customers see their value, applying these strategies can make the process go more smoothly.

Category: Small Business Success

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