Pricing Strategies: How To Price Your Services
Have you reviewed your profit and loss statement, only to find a loss that leaves you feeling frustrated? Once you do another look over, you need to find out why. One place that entrepreneurs sometimes forget to look is at pricing. If your service is not priced right, you will not be profitable, no matter how much you increase sales.
Determining the right pricing for services can be challenging, but there are several strategies entrepreneurs can employ to ensure they are charging appropriately and generating sufficient profit. BUT the most important part of this process is that you have a profit after all we did start our business to make money.
Here are some guidelines and considerations:
Start with Cost-Based Pricing
- Calculate all costs associated with delivering the service, including direct costs (materials, labor) and indirect costs (overhead, administrative expenses).
- Add a desired profit margin to cover business growth, risk, and a return on investment.
- This method ensures that the price covers all expenses and provides a profit.
- Remember to account for hidden costs when setting your pricing, taking into consideration all facets of your business such as marketing, customer support, and ongoing service enhancements.
Next: Use Profit Margin as a Guide
- Aim for a profit margin that allows for business sustainability, growth, and reinvestment.
- The desired profit margin can vary by industry, and you can google that information. Software subscriptions can be as high as 50%, supermarkets are typically 1-2%, as are liquor stores.
Next: Look at Value-Based Pricing
Assess the value your service brings to clients. Consider the benefits, outcomes, and competitive advantages your service provides.
- Are you experts in the industry?
- What difference will your services make to the client and their profit margin?
- Are you providing something unique?
A perfect example of this is art – if you based it on all the other pricing factors, you would be setting prices for far less than the value of it. Another example is when you are an expert in the industry or you have a proven track record of success. Your knowledge, derived from years of experience, should not be confined to an hourly rate – which fails to encompass the education and training you’ve undertaken – but rather should be reflected through value-based pricing.
- Set prices based on the perceived value to the customer rather than just the cost of production.
- This approach can result in higher prices if your service is perceived as highly valuable.
- Understanding the perceived value of your service from the customer’s perspective can lead to customer satisfaction and loyalty.
Review Regularly
Regularly review and adjust your pricing strategy to account for changes in costs, market conditions, or the perceived value of your services.
- Set a standard from the beginning when you create your pricing strategy.
- Let clients know that each year your prices will increase and let them know the range of increase. Will it be 5% or the rate of inflation – some years it was 0%, Are you ok with that? Or you can link it to their success if your services directly affect that. For example, if sales increase 25% our service fees will increase 2.5%.
Remember that the right pricing strategy can vary based on industry, target market, and the unique value proposition of your services. It’s essential to strike a balance between covering costs, staying competitive, and providing value to customers. Regularly reassess your pricing strategy to ensure it aligns with your business goals and market dynamics.
Our Latest Insight
Cash flow is the lifeblood of any business, but for service-based businesses, managing cash flow can be particularly challenging. With fluctuating client payments, project-based revenue, and ongoing expenses, maintaining a steady flow of cash is critical to sustaining and growing your company. In this white paper, we’ll outline five actionable strategies to improve your cash flow and ensure financial stability. 1. Optimize Your Invoicing Process One of the most common reasons for cash flow issues is delayed payments. To accelerate cash inflows: Use Automated Invoicing: Implement invoicing software like QuickBooks Online to send invoices promptly and track outstanding payments. Set Clear Payment Terms: Require upfront deposits or shorter payment terms (e.g., Net 15 instead of Net 30). Offer Multiple Payment Options: Make it easy for clients to pay via ACH, credit card, or online portals. 2. Improve Pricing and Packaging Many service businesses underprice their offerings, leading to tight margins and cash flow struggles. Consider: Bundling Services: Create packaged service offerings to encourage larger commitments from clients. Value-Based Pricing: Charge based on the value you provide rather than just hourly rates. Regular Pricing Reviews: Reassess your pricing annually to ensure profitability. 3. Implement a Recurring Revenue Model Recurring revenue provides predictable cash flow and reduces the pressure of constantly acquiring new clients. To transition to this model: Offer Subscription-Based Services: Create monthly retainers or ongoing support packages. Encourage Long-Term Contracts: Provide discounts for clients who commit to extended service agreements. Automate Payments: Use autopay systems to ensure consistent cash inflow. 4. Manage Expenses Strategically Reducing unnecessary expenses can free up cash and improve profitability. Some key actions include: Review Expenses Regularly: Identify non-essential costs and renegotiate vendor contracts. Use Technology to Streamline Operations: Invest in tools that automate administrative tasks and reduce manual labor. Outsource Strategically: Leverage outsourced bookkeeping or virtual assistants instead of hiring full-time staff. 5. Forecast and Plan for Cash Flow Gaps Proactively managing your cash flow ensures you can handle slow periods without financial strain. To stay ahead: Create a Cash Flow Forecast: Use financial software to predict cash inflows and outflows. Build a Cash Reserve: Set aside funds for emergencies or seasonal dips in revenue. Secure a Line of Credit: Establish credit before you need it, so you have access to funds when necessary. Improving cash flow isn’t just about cutting costs or chasing payments—it’s about implementing smart financial strategies that create stability and growth. By optimizing invoicing, refining pricing, adopting recurring revenue, controlling expenses, and forecasting cash needs, you can take control of your business’s financial health. If you need help optimizing your financial systems and cash flow strategy, First Steps Financial is here to support you. Schedule a consultation today!
As a service-based business owner, managing finances effectively is key to growth and profitability. When looking for financial support, you may come across terms like "outsourced accounting" and "fractional accounting." While they may sound similar, they serve different purposes and offer unique benefits. Understanding the differences can help you decide which approach best suits your business needs. What is Outsourced Accounting? Outsourced accounting refers to hiring an external firm to handle bookkeeping and financial reporting tasks on an ongoing basis. This solution is ideal for businesses that need consistent, reliable financial management but don’t require a full-time, in-house accounting team. Key Benefits of Outsourced Accounting: Cost-Effective: More affordable than hiring an internal accounting department. Scalability: Services can be tailored to your business size and needs. Access to Expertise: Work with professionals who specialize in bookkeeping, payroll, and tax preparation. Technology-Driven: Many firms use cloud-based software like QuickBooks Online for efficiency and real-time reporting. What is Fractional Accounting? A fractional accounting firm provides higher-level financial strategy and decision-making support, often acting as a part-time CFO or controller. This approach is best for businesses that need more than basic bookkeeping but don’t yet require a full-time financial executive. Key Benefits of Fractional Accounting: Strategic Financial Oversight: Helps with budgeting, forecasting, and financial planning. Higher-Level Expertise: A fractional CFO or controller can provide insights beyond day-to-day transactions. Customizable Support: Businesses can engage a fractional firm for a few hours a week or month based on their needs. Growth-Focused: Ideal for scaling companies needing financial strategy without the full-time cost of an in-house CFO. Which One is Right for Your Business? The choice between outsourced and fractional accounting depends on your business size, complexity, and financial goals. Choose Outsourced Accounting if: You need reliable bookkeeping, payroll management, and financial reporting but don’t require deep financial strategy. Choose Fractional Accounting if: Your business is growing, and you need financial leadership, cash flow management, and strategic planning without the cost of a full-time CFO. The Best of Both Worlds Some firms, like First Steps Financial, offer both outsourced accounting and fractional CFO services. This allows businesses to start with outsourced accounting and scale up to fractional services as they grow, ensuring they always have the right financial support. Both outsourced accounting and fractional accounting firms can play a crucial role in your business’s success. The key is understanding where your business stands today and what level of financial expertise will help you achieve your long-term goals. If you’re unsure which option is best for you, First Steps Financial can help! Contact us today to discuss your needs and find the right financial solution for your business.
Don’t overinspect or oversupervise. Allow your leaders to make mistakes in training, so they can profit from the errors and not make them in combat. -Col. Glover Johns We had just hit the jackpot. A Chinese submarine crossed our path in an area where no one expected it to be. This should have been a massive win for U.S. intelligence, our ship, and us as SONAR technicians. But there was one problem: no one made the call. The submarine was only discovered in post-analysis days later. What should have been a career-defining success became a failure for our SONAR team due to hesitation and lack of confidence. One of my teammates saw the submarine—its frequencies matched, it behaved like a submarine, and all the indicators were there. But he didn’t speak up. He was afraid of being wrong. When this failure came to light, our team had a meeting to figure out what went wrong. The teammate who had seen it was devastated. He felt like he had failed the entire crew. Our immediate supervisor didn’t help—he picked apart every mistake, repeatedly asking, “How could you miss this? I’ve shown you this a million times!” After a few minutes of this, his boss stepped in. He asked how we were being trained. The answer was obvious to all of us. Our supervisor was a doer, not a teacher. He couldn’t stand to see mistakes, so instead of letting us learn, he micromanaged and took over. The result? We lacked the confidence and knowledge to make decisions because we had never been trusted to. At this point, you might think, “What a terrible leader!” And you’d be right—at least in this instance. But what you might not realize is that even good leaders fall into this trap. And you’re not immune to it either. If you have kids, I guarantee you’ve stepped in and done something for them because they were taking too long. If you run a business, you’ve likely taken over a task because you didn’t trust an employee to do it right. It feels like the right move in the moment, but it’s not. It is the easy way out. The answer is simple: real leadership requires patience. It’s easier to take over than to teach. So how do we break this cycle? It takes discipline. Step one: provide the right training. No one becomes an expert overnight, but they need a foundation strong enough to work from. Encourage questions and never make people feel stupid for asking. If they’re afraid to ask, they’ll be afraid to act. Step two: let go. You have to trust the people you train. Set expectations clearly and then step back. Resist the urge to jump in. Step three: debrief. Go over the work. Point out successes and failures. Then, instead of just pointing out what went wrong, show them how to do better. Follow these steps, and I guarantee you’ll build a team that has the knowledge and confidence to make the call. Written by: Marc Chianese, CPA Candidate
