Disclosure: Some of the links below are affiliate links, which means, at no additional cost to you, I’ll earn a commission if you click through and make a purchase.
For business owners, the New Year isn’t just about turning a new page and setting goals – it’s about strategy. And figuring out your pricing strategy can feel overwhelming for many reasons, but here’s the thing, the start of a fresh year is a golden opportunity to reevaluate and raise your prices to set your business up for success. Your pricing strategy isn’t just about typing a new number into your checkout page, it’s making sure your business is set up to scale! And when we talk about scaling, it’s really about maximizing profit without constantly hustling. We’re aiming for that sweet spot where your business generates the most profit possible without you putting in extra hours.
And guess what? Your prices are crucial in reaching that goal. When you set your prices, it’s not just about the money coming in (revenue); it’s about the money you actually get to keep (profit). There’s a study from Harvard Business Review that highlights just how important your prices are when it comes to increasing your profit. The study showed that increasing your customer base by 1% might only result in a 3.3% profit bump. But here’s the kicker—adjusting prices by 1%? That can potentially spike your profit by a whopping 11.1%. That’s a game-changer! Adjusting your pricing is one of the most powerful levers you have when it comes to increasing your profit this year, and I want to help you with this today. So, if you’re ready to figure out your new pricing strategy, press play. Let’s get your business ready to scale this year!
3 PRICING STRATEGIES FOR SERVICE-BASED BUSINESSES
It’s important to know how much value you’re delivering to your client as well as know how much they’re willing to pay and how you can price competitively in the market that you’re in. Getting your prices right and having a system for setting up your prices to scale, especially right now when we’re talking about entering a new year and setting your business up to reach your goals, is super important.
Tune in to hear:
- three different types of pricing strategies that you can use as a service provider
- the pros and cons of each of them
- the one that I think is best
- my strategy for setting prices
3 TIPS FOR CREATING A PRICING STRATEGY THAT WILL SCALE
When we’re talking about scaling, we’re talking about exponentially increasing your profit without increasing your costs, the time, and the money that you’re putting into your business.
Tune in to hear:
- three main tips if you want to set up your prices to scale your business this year
- how to exponentially increase your profit
- my strategy for doing this without having to put in more hours into your business
Links and Resources Mentioned in This Episode
Click here to read the full episode transcript!
Jade Boyd: Your client should be willing to pay for the amount of value that they’re receiving from your service, no matter how high that number is. That is the number that people are willing to pay because they’re exchanging money, which is value, for a value that you’re delivering back to them.
Welcome back to another episode of the business minimalist podcast and happy new year. New year is one of my favorite times of the year, especially as somebody who loves productivity and goal setting and systems. It’s a naturally very reflective time to be thinking about your personal life and your business and to reflect on the direction that you’re heading and also everything that you’ve accomplished within the last year.
So this has been a really sweet season for me and one of the things that every business owner is thinking about when it comes to new years and what your strategy is going to be and what your goals are going to be is pricing, which can be sometimes a stressful topic for business owners to think about, but I think at the start of the new year is a natural time of year for you to increase your prices and for you to rethink your pricing strategy. So I wanted to start out this year on the podcast, talking about how to get your pricing strategy, right. And specifically, how to set your prices so that your business and your offers are set up to scale because that is what we’re focused on here.
How do we work smarter and not harder? We scale our business, which really is just a way of saying that we’re focused on profit, right? Because if you’re thinking about scaling, you’re thinking about how you can make the most amount of money possible without necessarily putting in more work. How can you leverage the inputs in your business, your time, your money, your energy, in order to get the maximum result and not cap yourself into a revenue cap or trading time for money where there’s ultimately going to be some sort of limit there. So when we’re looking at scaling, we’re looking at how to exponentially increase your profit without putting in more hours in your business.
And your price has a huge impact on your ability to increase your profit in your business, because when you’re pricing your services, many business owners think about that as the amount of money that they’re going to make, but that’s just not true. The prices that you set are your revenue. They are not profit.
There’s a lot of costs that go into offering those services, and there’s a lot of overhead costs that go into running a business. And so it’s important to look at your prices and the overall strategy in your business and make sure that your offers and prices are aligned to the profit goals that you have, that your business is creating that time and financial freedom that you want it to, and you’re not just focusing on that top line revenue and setting your prices that way because ultimately that might not get you a higher paycheck that might not get you more hours back with your family. And so we’re looking at profit here.
There’s a study that I stumbled across quite a long time ago that’s always kind of stuck with me. It was a study done by Harvard Business Review and it was looking at the leverage that you can have in terms of your profitability on different things that you’re changing within your business, and the two things that they looked at in this study to show that price is a huge lever when it comes to increasing your profit.
They looked at your volume and your price, two things that you can change. So when we’re thinking about this in terms of your goal for this year, are you focused on getting more clients or are you focused for making more money for the time that you’re putting into your business? Those are two different goals.
And what they showed in the study is that on average, if you improve your volume by one percent, so saying you book one percent more clients this year, on average, that yields a 3.3 percent increase in profit. So, a pretty small increase in profit, and you can multiply that by however many percentage points you want to increase your client, roster by.
But then they looked at price. And a 1 percent improvement in price they discovered on average produces an 11.1 percent increase in profit. And so looking at the difference that those two changes in your business can make And the higher leverage one obviously is increasing your price because it has an exponential impact on increasing your profit overall, which again, that’s where the freedom is coming from. That’s where the time back in your day, that’s where the extra wiggle room in your budget is going to come from. It’s coming from that profit. And if you think about it, this really makes sense, right?
Because if you’re just increasing your clients without changing anything else. You’re putting in more time, you’re probably paying the same amount of credit card fees, you’re paying the same amount of inputs when it comes to covering that services, your overhead is the exact same. But when you increase your price, you’re increasing the amount of money that you’re making per client without having to put in more of those inputs in order to make the money.
So it makes sense why the difference would be exponential, but there’s a really interesting article that goes more in depth on this. I’ll make sure to link it in the show notes so you can go read the article from Harvard more in depth if you’re curious to dig into more of those numbers. But when we’re talking about price, that is why it’s so important.
I think when it comes to increasing your productivity as a business owner, and again, working smarter, not harder, it’s really important to identify what those levers are in your business where you can make small changes that have big impacts in terms of your results and your ability to achieve your goals.
And your prices are not something that you want to change super often, right? Because oftentimes when we’re changing our prices, that requires a whole lot of changes to your systems. So for the new year, I also increased my coaching prices, but that meant I had to update the landing page on my website. I had to update the actual checkout page. I had to update my contracts, which restate the pricing for my coaching program, right? There’s a lot of things behind the scenes that need to happen when you’re changing your prices. And so it’s not something that you should be adjusting every single week or even every single quarter.
It’s important to get this right and set your prices at a sustainable level that you can’t sustain for the rest of the year. And I’m not saying that you can’t update your prices more than once a year, but be really strategic with how and when you update your prices. Because it does end up being a lot of work and it can sometimes complicate things on the back end if you are trying to do this all the time and like raising and lowering your prices, it confuses people too.
So getting your prices right and having a system for setting up your prices to scale, especially right now, again, when we’re talking about New Year’s and setting your business up to reach your goals, super important. And I want to mention before we get into the meat of this episode, that I do have a free masterclass called how to double your profit while working less.
And I will link that in the show notes as well, but that masterclass includes a template for making sure that your prices are set up to be profitable and that your offers are set up to be profitable and that your offers and prices are in alignment with your financial goals for the new year. It’s a really simple template, I pulled it out from part of the spreadsheet that I use with all of my coaching clients to help them backwards plan and break down their goals and make sure their offers and prices are aligned to their strategy. So make sure you go to the show notes and download that masterclass if you want the template and a way to easily dig deeper into your numbers.
Okay, with that being said, the rest of the time I want to focus on talking about two things. The first one is three different types of pricing strategies that you can use as a service provider. The one that I think is best and my strategy for setting prices, but I want to look at the three different ways that you can set prices just to look at the pros and cons of each of them.
And then second, we’re going to get into three main tips that I have for you if you want to set up your prices to scale your business this year. And again, exponentially increase that profit without having to put in more hours into your business. So first let’s talk about pricing strategies.
The three pricing strategies I want to talk about are competition based pricing, cost based pricing, and value based pricing.
So the first one, competition based pricing. It’s pretty simple. It’s exactly what it sounds like. This is when. Many times, if you’re a newer business owner, this is what you’ll jump to. You just research other people who are offering similar products or services in your industry and what they’re charging, and then you set your prices accordingly. Either you price yourself right at what everyone else has priced at, or you undercut them, which can sometimes there’s a strategy called market penetration pricing, which I would also include in this category of competition based pricing and market penetration pricing is basically cutting your prices so that you can get as much market share as possible. You can get as many people to sign up. It’s oftentimes used for subscriptions or memberships or something like that, where they’re signing up for an extended amount of time and signing up for one thing means that they’re not signing up for another thing.
So it’s New Year’s and everyone’s signing up for gym memberships at this time. And so that’s one of the things that gyms do at the new year, they cut their prices so that they can get as many people in the doors as possible and lock them into that year long contract or however long their contract is.
And they’re competing with all the other gyms who are looking to do the exact same thing at the same time, right? That is a form I would say of competition based pricing, or at least it can be when you know, your competitors are trying to do the same thing and you want to undercut them. It’s basing your prices based on what everyone else is doing and their goals and what they’re trying to accomplish. But for online service providers or done for you service providers or coaches, creatives who are offering service based offers, this basically just looks like researching your competition or the main leaders in your industry or whoever you’re looking up to seeing what their pricing and then adjusting your prices based on how experienced you are in comparison to them or feeling like their prices are fair. So you just copy and paste what their pricing is. And the reason why I think this is not a good strategy, you might have already anticipated that this is not my favorite thing.
First of all, it’s not very strategic because their prices do not take into account anything with your business or your goals. And so when you’re copying and pasting other people’s prices without going more into detail on the next two things that we’re going to talk about. You may be setting yourself up to fail because their prices may not be aligned with your business goals or what you want to accomplish or the people that you want to serve and work with, right?
And so making sure that the prices you’re setting are in line with your own business strategy and in line with your goals, super important. And not all business owners do that when they’re just focused on setting their prices based on what everyone else is charging.
The second reason is that they might be undercharging for their services. And just because everyone else is undercharging for their services, doesn’t it mean that you should. So looking at your own numbers in your own business, I just can’t overemphasize the importance of that.
So that takes us to the second pricing strategy, which is cost based pricing. And I like this strategy a little bit more because it does require you to look at your own numbers. So cost based pricing is basically looking at how much it costs you to deliver a service or to deliver a product. We’re mostly talking about service providers, but this is true for product based businesses as well. And then you’re upcharging based on what your costs are. So if your cost for your service is just to keep numbers round is a hundred dollars and for every new client you take on, you figure that it costs you a hundred extra dollars to serve that client, whether that’s like an extra software subscription that you have to use for them or like your client gifts, whatever goes into your service that you’re paying money for for every new client, it’s a hundred dollars.
And then you’re saying, you know what, I want my profit margin to be 50 percent. So you upcharge your pricing so that your profit margin is 50 percent and you do that across the board. You’re just setting your prices based on what your costs are. And again, the reason that I like this is that it at least helps you make sure that your pricing is profitable and that you are making profit for every single sale that you’re making in your business. And that’s a good thing, I think every business should be aware of what their cost based price is. And this is something I go over with my coaching clients, too, because we do something that’s kind of a mix of all three of these.
But the first thing really is looking at your costs in your business, at all of your overhead. And again, if you get that masterclass, you’re also going to get my template that helps you project your revenue and expenses for the year. And so by doing that, you are taking account too like, what are all of the things that I have coming up in my business for the next year that I have to pay for it? That’s part of your costs.
So it might not even necessarily be a cost that’s directly associated with an individual client. For example, I have a,Zoom subscription because I record my podcast on Zoom. I have a ton of meetings on Zoom and I need additional features that are not included with the free Zoom plan.
So I pay for Zoom in my business, whether or not I have 10 or 20 clients at the same time, I’m paying the same amount for Zoom, right? So that’s kind of an overhead cost, even though it’s kind of related to me serving clients, the price isn’t going to change or the cost isn’t going to change based on how many clients I’m serving at any one time.
So with cost based pricing, you are taking into account the cost for each individual client, but also your overhead costs that aren’t going to change no matter how many clients you take on and you’re making sure that your prices are set in a way that covers your cost with a percentage that’s helping you make profit in your business as well.
The reason why I don’t like cost based pricing is because it is not strategic in the way that it doesn’t really count for what people are willing to pay or the value that you’re delivering them, which is why we’re moving on to the third pricing strategy, which is value based pricing. Figuring out what the value is that you’re delivering to your client and your client should be willing to pay for the amount of value that they’re receiving from your service, no matter how high that number is.
That is the number that people are willing to pay because they’re exchanging money, which is value, for a value that you’re delivering back to them. And the value that is delivered in the service is very subjective because the value is not the same to person A as it is to person B.
So, for example, business coaching. If I’m coaching somebody who just had the idea yesterday to start a business and knows absolutely nothing, they’re probably not going to be willing to pay me for my services because I’m not going to be able to help them get to a certain level of results in terms of scaling their business unless they’re starting from somewhere, and so if they’re starting from zero, there’s still so much work that has to be done in terms of like figuring out what they’re good at and setting up their LLC and figuring out all the different softwares to use, and experimenting in their business and all of that takes time, which is why I focus on helping people who are at least two years into business who are already good at what they’re doing and already know the general business stuff, right?
They’re already started so that now they can focus on scaling their business and doing the really high ROI activities that provide a lot more value in their business. So I charge more for that than I would for coaching somebody who’s just starting out because the value is much higher the potential for them to make revenue and profit and get results. Those are much bigger results that are worth much more money, which means the price reflects the value that’s included in that, right?
So when you’re thinking about value based pricing, the question that you’re asking yourself is, what is the value that my client is going to get after completing the service? At the end of the day, when we’re done working together, what are all of the results that they’re getting and how can you try to quantify that?
So if they are saving time in their business or in their life, how much is that time worth for them? Try to put a number on it. if they are getting certain results, if they are, like I mentioned, increasing their revenue in their business, there’s a direct value that’s associated with that. And that one’s pretty obvious because it’s just the flat out number that they’re increasing in their business right. So that one’s an easier one. But ultimately just making a list on one side of your paper. If you draw a line down the middle on the left side, I would write down. All the things that they get, all of the results that they’re going to achieve while they’re working for you and then on the right side, figure out how you can try and put numbers to that value so that you can estimate what is the actual value that I’m delivering.
And then at the end of this exercise, you’re going to have two numbers, right? You’re going to have that floor pricing. What is the bare minimum that I need to be able to charge to cover my costs in my business and be profitable? And then you’re going to have the value pricing, which can be really, really high because sometimes it’s hard to put numbers to the value that you’re delivering to somebody.
If you’re changing their life and the way that they’re experiencing everyday life or changing their mindset about something, sometimes it’s really hard to put a value to that. Sometimes it is absolutely priceless, right? And so that value based pricing that you’re estimating, might be really high and that’s where it comes into the strategy of positioning yourself based on the exact person that you want to work with and the value that you’re delivering to that exact person and also considering what people are willing to pay.
So just to recap, the three pricing strategies we talked about competition based pricing, which it’s important to know what your competitors are pricing at, but you should not base your prices solely on what other people are charging. The second one is cost based pricing. It’s important to know where your numbers are at and how much you need to charge in order to break even and make a profit.
But it’s important to know more than that and charge higher than that if you want to scale your business. And then the third one is value based pricing. And it’s important to know how much value you’re delivering to your client, but then it’s also important to know how much they’re willing to pay and how you can price competitively in the market that you’re in.
So thinking about those three different ways to price your services. Next, I want to talk about how to price your services to scale. Because again, when we’re talking about scaling, we’re talking about exponentially increasing your profit without increasing your costs, the time and money that you’re putting into your business.
So I have three main tips here. If you want to do this.
My first tip, you might have already anticipated this one coming, but keep it simple. Keep your pricing strategy simple and keep your offers simple. Because if you have set prices for set offers and everything is standardized, it creates a lot less work on your end to actually deliver those services. If you’re trying to do something different and create custom proposals and have a million different prices for a million different services, it gets really complicated, not only complicated to sell because people get confused when you give them too many offers. But it also gets complicated to actually deliver those offers and to market yourself because if you’re doing something different for every single person who comes into your business, it’s harder for people to actually talk about what you do in a way that makes sense and to refer you other clients who are your ideal clients.
Because if everyone wants something different, you’re going to get a grab bag of clients who are, coming through your doors or filling out your contact form that makes it harder for you to figure out how you can help people best. And so the best gift that you can give yourself in terms of setting prices that are going to scale is setting standard prices and standard offers and choosing what you want to be known for and how you want to deliver that value to your client because you’re the expert.
You know what your client’s problems are. You know, the type of person that you want to work with, you know, that highest value that you can deliver to them. And you’re the expert in terms of determining what is the best way to deliver that value to your clients. And when you’re talking about delivering value, that really is just how you package your service.
So optimizing what your offer is and choosing to say, if you want these results, this is the way to get it. I’m the expert and the perfect person to do this for you. Here’s the price that makes decision making and selling and fulfilling the offer, serving your clients, creating a really great client experience.
All of those things become so much easier, which means less work on your end, definitely a lot more automation on your end and more profit.
My second tip is do not. Skip the activity of going through value based pricing. Many of my clients are really surprised to see the number when they’re going through that value based pricing exercise and figuring out what is the value of the results they’re delivering to their clients. Like I said, sometimes that number is really, really high, and that can give you a lot of confidence if you are looking at increasing your pricing this year and you’re kind of on that fence between like, oh, I know I should increase my prices because I need to be making more than I’m making, but also I feel bad because my past clients or because I’m not confident that I’m delivering that much value. I’m not confident people are going to pay for it.
Actually going through the numbers and taking the time to go through that exercise and look at that objectively, all of the things that they’re getting in terms of working with you, all the results, all of the benefits that they’re experiencing. In terms of working with you and how much that’s actually worth, you’re probably going to be really surprised at how much value you’re delivering.
And what I’ve learned from working with many, many clients on this exercise is that people underestimate themselves and underestimate the value they deliver because. It’s natural to you, right? This is your thing. This is something that comes easy to you. This is something you’re really good at. And it’s easy for us to underestimate the value of that when it is so easy for us.
But other people who are not the experts get a ton of value from working with you. And so make sure you do not skip that value based exercise and figuring out what is the value you’re actually delivering to your clients, because again, if you have been doing something different for every single client and you have just been working with a grab bag of clients where everybody else is coming from a different place and they’re getting different value, that can be a really hard thing to quantify.
But if you want to streamline the way that you’re marketing yourself and the way that you’re positioning yourself and the way that you’re standing out in your industry, it’s really important to get clear on what is the value that your clients care about and what is the value that they’re willing to pay for.
And my third and last tip for service providers who want to set their pricing strategies up so they can scale in 2024 or any year that you’re listening to this episode is to figure out a way to have recurring payments in your business. Not just offering one time fees for your services, but packaging your services in a way that allows people to have a payment plan or setting up a subscription model.
So that you’re able to predict your revenue over time. It’s easier for them to say yes, because there’s smaller payments up front, but also in terms of scaling, when you can lock in clients for a longer time, and that’s probably going to mean providing more value to them, right? Rather than working with somebody just one time for one hour or for one day, if you’re able to have that, repeat relationship with clients where they’re coming back again and again, and you’re able to provide value month after month after month, or even just splitting up that process for them. So it’s not as overwhelming, just asking yourself, what are ways that I can provide more value to my clients and also increase my prices? And Sometimes that’s easier if you can switch to some sort of retainer model or a subscription model.
So to give a couple examples of how I’ve done this in my own business, when I was doing brand photography, that was kind of the nature of brand photography, right? You just show up and you do one photo shoot and that is the value delivered. There’s, of course, homework and onboarding and questionnaires and stuff that happens beforehand to plan.
There’s the day of the photo shoot and there’s follow up afterwards in terms of how to use your photos and delivering the photos themselves. But it’s pretty much a one time thing, which means the payment plan was pretty short. Usually people would only pay in two or three installments, which means that revenue prediction was harder because if I’m booking photo shoots, typically I was booking them.
I mean, three months max in advance because people book them when they’re pretty much ready to have a brand photo shoot. And so that only leaves me two to three months of predictable revenue in my business. So when I was a brand photographer, I decided to do a brand photo subscription model where I did four mini sessions throughout the year and people signed up for monthly payments.
So they paid every single month, but they had a photo shoot every three months and I was able to get enough people in that membership so that that one offer was covering all of the costs in my business for the whole year, and my costs were pretty low, when it came to brand photography and like the ongoing cost of running that business.
But that was a huge relief for me at the very beginning of the year, January 1st, knowing my costs for the entire year covered and anything I make on top of this is going to be pure profit. So even if this isn’t something that you’re offering as your main offer or your main model thinking about ways that you can build that repeatability and that predictable pricing model, either in retainer or subscription into your business.
If it makes sense for you, it definitely doesn’t for every business owner, but this is one of the tips that I want you to think about when it comes to building a profitable business. How can you package your pricing strategy in a way that does allow you to meet your goals and allow you to approach your business and selling in a way that feels more fun and less overwhelming.
Because if every single month, what you do to market your business, like you have to show up every single month and get new clients in order to hit your business goals, that can be really overwhelming. It also makes it way harder to take time off. Right? So letting yourself set up a business that feels a little bit easier and adjust your pricing model so that you are allowed and able to feel that ease and that weight off your shoulders in terms of booking new clients can be super helpful when it comes to scaling.
It’s also going to free up more time for you If it takes less effort to book new clients, right, you’re not having to scramble every single month or create a ton of content or do a ton of marketing activities every single month to get new clients in order to pay the bills and hit your basic revenue.
If you’re able to set that up as subscription and then anything you do on top of that is fun. You’re going to have more time overall because you’re not spending a ton of extra time marketing every single month, right? That’s covered. anything you do on top of that is like your fun stuff that you can plan on the months or the weeks when you want to do those things.
And again, anything on top of that is just pure profit and pure needle moving activities to help you get closer to your financial revenue goals.
So like I mentioned at the beginning of this episode, if you want a template and more resources to help you nail down your pricing for the new year, definitely go to the show notes and sign up for my free masterclass, How to Double your Profit While Working Less. And in that master class, you’ll get that exact template that I use to help my clients price their offers and package of their offers so that their business really is set up to scale to their financial revenue goals and that they’re able to set themselves up for success when it comes to paying themselves, not just hitting that fancy revenue goal, but paying themselves what they want to be paid every single month. And also not hustling, not scrambling for clients, not spending every weekend on their laptop, not panicking when they go on vacation because their inbox is flooded with emails, figuring out how to scale your business and pay yourself your dream owner’s pay goal without hustling and working more. So make sure you grab the free masterclass. If you want to dive deeper into this, we’re going to have a lot more episodes this year on scaling your business. So if you’re new to the show and you’re a service based business owner who is feeling the overwhelm right now, you’re definitely going to want to hit subscribe and stick around because there’s a lot of helpful content.
Coming throughout this next year. And I’m just really excited what we have planned for the podcast. So until next time, business minimalists take what you learned today and get 1 percent better this week.
Subscribe to the Business Minimalist™ Podcast
If you enjoyed this episode, you won’t want to miss what’s coming next! Make sure you hit the subscribe button to tune into future episodes.
If you love the Business Minimalist™ Podcast, I’d be so grateful if you’d rate and review it on iTunes! Simply scroll down, tap to give it a five star rating, then tap “Write a Review.” Your rating and review will help more small business owners discover helpful episodes each week!