Pricing Services and Your Competition

Although it should be rather alarming to me that many business owners don’t use their own numbers to price their services, it’s unfortunately a very, very common occurrence that I’ve witnessed in the last 7 years of coaching and advising technology businesses.

Besides regularly being asked directly about this subject, a few times a year I see it as a hot topic at events, in articles, in blogs, etc. And December to January is when it’s the hottest topic as many businesses start-up at that time, others are looking to change their ways, and yet others are ready to roll out a new service.





So right now the question is at its peak and I need to throw my 2 cents in.
A common suggestion given to people looking for pricing answers is “look at the competition”. And so the blind leading the blind begins…

I don’t want to make this a long post so I’ll say this; unless you already know your own break even numbers and the necessary profit margin you need/want (especially if you have sales people on commission selling this service), you can’t go looking at competitor’s pricing just yet.

The biggest mistake made in the consulting and service businesses is basing pricing on competitors without knowing how that compares to your own business financials. Is it important to know what others are charging? Sure it is. Do you have to be in line with a business of the same size as your business? Absolutely not.

Why is this, you may be asking yourself. Well, first off, you have no idea why your competitors are charging what they do. They could be undercutting themselves for all you know. Second, you are setting yourself up for an apples to apples comparison on price. This is especially dangerous when offering any kind of flat fee services.

The goal is to determine your hourly pricing based on your costs for break even and your needed/desired profit margin. Now you have some boundaries to play with. And since I am a huge fan of not working hourly but for flat fee projects or recurring revenue models, then you also need an excellent handle on the time it takes to perform services. (You do track this metric right?)

At this point you can look at the competition and see what they’re getting. Hopefully it’s at least what you need to price things at. If not, you better juice up the value proposition because you can’t go below your minimums.

Best case scenario is the market is bearing some great price points. If you can get double what you need because you see people are already paying for it, then why not go for it? You have nothing to lose as long as you don’t go below your minimum needs and you can prove the value of what your business delivers.

That’s it for now. Please leave your comments or questions below or contact me from the consultantscoach.com site.

Next week is video blog week. See you then!


To Your Business Success-

George Sierchio
The Consultant’s Coach