We’re going to be going over how you can price the services for your side business.
Now, pricing the services is very important as you want to make sure you can cover all your expenses.
You also want to make sure you’re not under-pricing yourself and leaving money on the table.
Or conversely, you’re overpricing your services and scaring away the potential market and target customers because your price is too expensive.
It’s really important we focus and spend some time on how to price your service and you do it correctly so you don’t have to keep flip-flopping and changing your pricing down the road, as that will scare away your long-term customers.
Video: Pricing Your Service
Step 1: Competitor Analysis
The first step for pricing the services for your side business is to conduct a competitor analysis. Now, this is the first step because we need to understand what is the competitive landscape, how much are they charging, what type of value they’re bringing to that target market and where they position themselves in relation to your side business. This will also give you a good understanding of the general baselines of where you need to price your services.
For example, if you notice a lot of competitors charging a thousand to two thousand dollars for their service in that range. Well, you can sort of get a good idea that charging below that will target people that may not be in your target market or could be undercutting yourself and leaving money on the table.
And charging above that may mean that customers may not want to work with you because it’s just too expensive for their willingness to pay.
As you’re going through and developing:
The list of competitors,
What their service offerings are,
How much value they bring to the client, and
Those prices associated with those services.
You will begin to understand how much value you need to actually give to your target market in order to charge those same prices or higher.
Charging higher prices than competitors
For instance, if you notice that your competitors are offering a lot less value, personalized service, etc, than what you offer. Well, you can consider charging a higher price point than your main competitors in that area because you know you’re offering more value, that personalized support, or whatever it is that’s really helping and going above and beyond what your customer’s expectations are.
Charging lower prices than competitors
Similarly, you want to make sure you’re not undercutting and under-pricing yourself and leaving money on the table. If you’re only charging 100 to 200 dollars for your service, but your competitors are charging a thousand to two thousand dollars and only giving the similar level of value or less.
Well, you know that you’re under-pricing, and that you have a lot more room to increase and grow in your pricing. And conducting the competitor analysis will give you a good baseline so you know where to start.
Competitor Analysis Builds a Benchmark
It can be easy just to throw a dart board at the wall and see what number you hit and choose that for your pricing. But this will actually give you a competitive advantage if you can understand the price points and the value that your competitors are offering.
Step 2: Estimating The Value You Bring
The second step to pricing your services, after you’ve conducted that competitor analysis, is to estimate the value you bring to your customer and target market. It’s really important you price your services off the value you bring and not off what it costs you to operate and run your business.
Why this approach is important
This is because people don’t actually care how much it takes to run your business. They only really care how much value they’re going to be getting out of the service they’re buying into. They don’t really care if you have one hundred-thousand-dollar marketing budget, what they care about is the results you’re getting them.
If you’re helping small business owners, with your side business, increase revenue to 10 to thirty thousand dollars more a month, well, you wouldn’t want to price your services for one hundred and two hundred dollars. You’d want to look in the price range of five to seven thousand dollars as you’re bringing incredible results to them that could ultimately transform their lives.
Consider how you’re helping someone
You really want to think about the value you bring and if you’re really transforming someone’s life, really solving a problem and helping them get over the hurdles that they’re really struggling with, well, people will usually pay a lot of money for that.
And it’s usually worth a lot if you’re adding a lot of value into their life and helping them.
So really consider how much you’re helping someone, what’s the transformation there, and you can sort of base your pricing off that as you go. Also basing it with a competitive analysis.
Step 3: Defining Some Price Levels
In step 3 here, we’re actually going to be defining the price levels that will price our services at.
In step one, we were able to get a good benchmark of where we can price our services based on what our competitors are doing. This gave us a sort of a range and a place to start in knowing where to charge.
In step two, we were able to sort of narrow down the value we bring and how we’re helping our customer and ultimately how that is going to turn into a price.
Higher Price Points
If we’re giving a lot more value than our competitors are giving, we can really go above and beyond the benchmark and charge a higher price.
Lower Price Points
Similarly, if you’re offering less value, you’ll need to understand you’ll have to charge a lower price than what your competitors are offering.
Finalize Some Numbers
Write down some specific numbers that you think you’d pay for this service in exchange for the value that you’d get.
Step 4: Testing and Validating The Prices For The Service
In step 4, once you’ve nailed down those price points that you think your customer would pay for your service. It’s now time to go and test and validate these price points in the market with our target market.
Getting Potential Customer Feedback
What we’ll to do is round up three to 10 of our target customers and see what their willingness to pay is for these services and for the outcome and value they’d be getting.
This step usually takes the longest because getting in contact with these people, setting up a time to get on the phone or go for a coffee chat can be time-consuming, but it’s really worth your while.
The last thing you want to do is launch your service with a price point that’s too high or too low and you’ll be either leaving money on the table or customers won’t be working with you due to your price.
This Helps In The Long-Run
Talking to your target market and understanding know how much they’re willing to pay and what they’re not willing to pay for will really help in the long run as you run your business. If you go to increase your prices down the road, you’ll know sort of the ceiling you’ll hit before you’ll need to really up that value you’re bringing or change the transformations etc.
Tip 1: Target a Specific Niche With Your Side Business
The first tip for pricing your side business services after you’ve gone through those steps is to make sure, and something I always highly recommend with side businesses, is that you’ll want to be targeting a very specific niche and to make sure you’re positioning in the market is very specific to that niche.
The Benefits of Niching Down
When you target very specific niche markets instead of, you know, the mass audiences, you’re able to charge higher price points. This is because, generally, there’ll be fewer competitors in that area and there’ll be fewer options for those customers in order to buy from. You’ll also be able to offer a service that solves a very specific problem and adds a lot of value and transforms people’s lives, in a way that they couldn’t get from a general competitor. As those solutions are usually too general or too broad in order to fit into this specific scenario and niche that you’re in.
Niching Down Will Allow You To Charge Higher Prices
If you nail down that niche and position yourself in that niche for that specific area, you’re generally able to charge higher prices than you would if you’re just a general average specific business.
Example of Niching Down
What do I mean by niching down?
Well, to give you a quick example, years and ago when I started Business Idea Insight, I was pretty general. I really would help people just with their business ideas, which is a very large topic. And I wasn’t making much money because I was so general and not specific to a certain group.
Once I nailed down that I was going to be helping people with a side business who worked full time and wanted to start a service side business, well that’s when I started to see more money coming in and more engagement with the audience, and just overall better business results because I had a specific niche.
And I was also able to charge a much higher price point for my coaching and consulting services as I was serving a specific niche that wasn’t necessarily getting the coaching that is being offered currently.
Tip 2: Price For Success With Profit Margins
The second tip I want to give you guys is to price for success.
To do that, you really need to consider making sure their pricing has a profit margin in there.
If you’re not understanding what a profit margin is, while basically that is the margin that’s left after you’ve paid for your labor and hourly wage, as well as all your other business expenses that take away from that top-line revenue.
For instance, if you charge one hundred dollars an hour and you add in an hourly wage of thirty-five dollars an hour for yourself and there’s about twenty dollars in there of expenses, well you’ll be left at the end with a profit margin that you can calculate.
Why Profit Margins Are Important
This is really important as you go and build and look to scale your side business as if you want to hire someone to come in and perform those services so you can help more clients or work on other pieces of your business, well making sure you’ve accounted for the hourly wage will allow you to have that profit margin at the end. So you’re not going to go broke running your side business if you need to hire someone.
By following those four steps and those tips, you really should be able to define that price point for your service and your side business altogether.