Knowing what to charge for your services can be difficult. You want to make a decent profit without scaring off customers. Here are some concrete tips for how to set the selling price for your services.
There are three types of pricing strategies you can use to arrive at your selling price: project-based pricing, hourly rate, or price per service. Let’s break these down by looking at some examples. 👇
This article is part of our pricing series
Make sure to check out these articles, too:
Work out your ideal profit margin
To figure out your prices, you first need to figure out what kind of profit margin you want. The profit margin is a percentage that shows how much you’re earning per sale.
To work out your profit margin, you need to know your cost price: in other words, what it costs for you to provide the service. This can include everything from transportation cost to raw materials, equipment, insurance, or the cost of hiring third-parties.
Once you know the cost price, you can figure out how much profit it’s realistic to earn on top of that. It’s common to aim for at least a 10% profit margin.
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Selling price alternative 1. Project-based pricing
If you’re a consultant, you might choose to charge per project. This is common if you, for example
- work as a management consultant that helps businesses improve their efficiency
- help businesses with financial planning and analysis
- help businesses with invoicing and accounting
- help businesses implement new software, for example CRM software
You can also use this pricing strategy if you work in construction, marketing, project management and so on.
If this pricing strategy is right for you, you need to work out how much it costs you to deliver this service.
Project sizes and lengths can vary a lot, so make sure to include both fixed costs—office rent, insurance, depreciation and so on—and variable costs like raw material, production costs, transportation related to the job, software that you require and so on.
Once you know your cost price, you can add your ideal profit margin to work out how much you need to charge your client. It’s also a good idea to specify that any additional work, beyond the scope of the project, will be charged at an hourly rate.
Selling price alternative 2. Hourly rate
Charging an hourly rate is a good idea if you’re not sure how long a project will take or how long you’ll need to deliver a service. Many industries use hourly rates, for example freelancers, electricians, plumbers, physical therapists, doctors and more.
You’ll need to figure out how much you need to charge per hour to cover your cost price and to achieve the salary you’re looking for. The hourly rate calculator can help you with that.
Simply enter your ideal salary, information about how much you’ll be working per year, and an estimate of your yearly costs. The calculator will suggest an hourly rate for you.
A lot of customers will require you to give an estimate of how many hours you’ll need to complete the job, but of course you can specify that additional hours might be required.
Selling price alternative 3. Fixed price per service
Charging a fixed price for services is common for services that don’t vary in size or length. Typical examples include accounting services, child care or caring for dogs in a kennel. For all of these you can charge a fixed price per year, month, or week.
To work out what to charge, you have to figure out your yearly, monthly or weekly costs—depending on how frequently you charge—then add your ideal profit margin. It’s a good idea to review these fixed prices every so often, as the cost of material, rent, subscriptions and other costs will increase over time.
You should include information about potential price increases in your contracts, but make sure to inform the clients early to maintain a good relationship.
Bonus tip: Consider different pricing strategies
No matter if you charge per project, per hour or a fixed price, you might need to adopt different pricing strategies to succeed. Find the best pricing strategy for you.
