Pricing Strategies: How Much Do I Charge for My Service?

“I’m not sure what to charge my clients” is one of the most common refrains I hear from new online service business owners.. It’s a problem that plagues even the veteran business owner as she becomes more aware of her competition and what monetary value her skills hold in the marketplace.

How do you decide how much you’re going to charge? Here’s the bottom line — you have to charge enough to be able to sustain yourself in business. Make sure that you’re a “true” business owner netting a decent take-home pay each month without depending on savings, another job, or a spouse’s income to make ends meet. This rate easily enables you to pay for your overhead and business expenses, ongoing professional training and development, and benefits you had while working for someone else — things like vacation time, health insurance, life, and disability insurance, for starters. And remember, you’ll need to factor in what you’ll pay in self-employment taxes and state income tax (as applicable) and pay those as scheduled to prevent the taxman from knocking at your door.

When you determine your rate, realize that if you’re billing hourly, you’ll probably only bill 20-30 hours per week, rather than 40. Why?  Because you’re running a business, which means that you’ll spend part of a day engaged in non-billable tasks, like marketing activities, meetings, consults with prospective clients, lunches with friends, etc.

If you decide to use pricing as a strategy to undercut your competition by charging less than everyone else, in the long run you’re not doing yourself or your clients any favors.  You’ll soon discover that your low prices make it impossible for you to afford to stay in business after the first year.  This means that you’ve put your clients in a bind, as they have to go now and find someone else to provide the service for which they hired you. Ultimately, this low pricing decision will probably result in you closing the business and returning to work for someone else, as you need some income to pay the bills as they arrive. So, who’s won in this scenario? I frankly don’t see any winners here.  In the long run, low pricing strategies only work for high volume businesses and make service business owners go out of business quickly.

“Emotional price points” are another key issue that will frequently hold an online business owner hostage. A service business owner will set a price that she’d like to charge, but in her heart of hearts, she truly doesn’t feel she’s worth that rate. How can you “convince” your inner critic that you’re worth what you need to charge to make a decent living? Play around with your pricing structure until you’ve found a rate that you can comfortably discuss with potential clients without stammering or stuttering. Trust me, if you don’t believe you should be charging what you say you charge, potential clients won’t believe it either. And, if that price point falls below that minimum standard that you need to be successful, seek the counsel of a business coach, friend, or colleague for support. You deserve to make a decent living and be successful in your business, but you have to be willing to set yourself up for success to make that happen.

If you still have difficulty with this concept, here’s what John Ruskin, a very successful Victorian-age entrepreneur said in 1890 about this subject: “It’s unwise to pay too much, but worse to pay too little. When you pay too much, you lose a little money — that’s all. When you pay too little, you sometimes lose everything, because the thing you bought is incapable of doing the thing is was bought to do. The common law of business balance prohibits paying a little and getting a lot — it cannot be done. If you deal with the lowest bidder, it is well to add something for the risk you run. And if you do that, you will have enough to pay for something better.”