Beyond the act of finding clients, I find that figuring out PRICING for offers is one of the hardest acts to determine for your business.
And that gets even more complicated when your work is customized to the client. How do you appropriately cover your time, your expenses and your profit margin when it can be so different from client to client?
As an operational consultant and owner of an agency, this was a question I’ve had to ask myself and clients MANY times.
I break down how pricing can work for your service based business, and how to ensure you are PAID without alienating the client (in fact, they’ll probably be happy to pay you more) in today’s article.
Types of Custom Services Pricing Models
Let’s start with the different ways of pricing that are out there for service providers and agencies:
Hourly
Hourly pricing involves charging clients based on the number of hours worked. Here, the agency determines an hourly rate for its services and bills clients accordingly. While the most flexible of the models for your offer based exactly on how much effort was put into each project, it leaves little space for scalability and ties the value of your offer to how much time you put into it when relied on solely.
Fixed Package
In the fixed package model, the agency offers predefined service packages with a set price for each package. Clients can choose the package that best fits their needs and budget. This not only allows you to set clear expectations and deliverables, it makes it easier for you to delegate deliverables, you have ample opportunity to upsell to various other offerings. The biggest hurdle is ensuring that clients feel their needs are being met within the package, given the limited flexibility.
Monthly Retainer
A monthly retainer has the agency charges clients a fixed fee on a monthly basis for a predefined set of services or a certain number of hours. This leans towards from a healthy mix of the two above packages, allowing for routine deliverables each month, building relationships with your clients, and allowing for more predictable income. It’s main drawback is ensuring there is no scope creep, and that clients feel they are getting the full bang for their buck if they don’t fully utilize all services within their agreement.
More than likely, you are going to do a mix of the above, in order to accommodate for different client needs, especially as a service provider. However, when it comes to your CUSTOM work that clients ask for, how can you ensure profitability?
That’s going to come down to a few factors:
How to Price Your Customized Service
To avoid the endless cycle of determining what would be the “right” price for your services, especially when so much of it is custom, let’s look at a process-driven way to evaluate your services, and the value they provide to your clients.
There are FOUR things we need to keep in mind while pricing: PROFIT MARGIN, PERCEIVED VALUE, PERCEIVED RISK, PROCESS
Profit Margin: Pretty self-explanatory, but we want to make sure that you are making a profit from the work you are doing! So ensuring that the price covers your expenses (your tech, your hires, etc) is important to ensure your business is profitable. If you charge $10,000, and you want to clear at least 45% profit, your profit should be around $4500.
However, as we both know, this is only one piece of the puzzle. We want to make sure your ideal client can and WILL pay this price.
And to do that, we need to look at perceived value and perceived risk.
Perceived Value and Perceived Risk:
Unlike what’s out there on the internet, your “value” has nothing to do with your innate worthiness as a human being, and everything to do with how much value your offer gives to your ideal client.
I like this imagery best by Alex Hormozi when discussing your offer value:
For the purpose of our example, let’s simplify it to the following:
The Price = The Perceived Value + Result of Your Offer – Perceived Risk (Time Delay, Sacrifice, Failure, etc)
Note I say perceived value because your client profile is who will set the value of your offer, not you! You want to ensure you are not only choosing a price that suits the value of your offerings, but a client profile who is willing to pay that price as well.
The other side of this coin is Perceived Risk. Depending on the situation surrounding your clients, there are a variety of risks that are weighed up in a client’s mind to determine if your service will warrant success for them.
- How likely are they to succeed?
- How long will it take for them to see results?
What parameters outside of this service could impact their success (inflation, time constraints, etc)
Now the good news: We can help our clients have an increased perceived value of our service, to match the pricing and profit we are looking for with our service.
We can also reduce perceived risk AND expenses in this same way.
That way is through a defined PROCESS.
Process: We can influence the perceived value and perceived risk of our offer, by defining and communicating our offer delivery really well. These processes are focused on driving a high-level, consistent experience for your client interactions throughout the buyer’s journey. This can include lead nurturing, customer service, client onboarding, progress updates, and post-project follow-up.
At the Afro Coach, we recommend a delegated Offer Delivery, in order to ensure it can be sustained, regardless if you are the one serving your client or not. This is done through iron-clad, simplified processes.
Here are a few ways process can either limit the perceived risk or increase the perceived value:
- Anticipate and bake in solutions to possible roadblocks or hindrances to a result inside of your offer (think anything that could delay your timeline, cause confusion, or cause several rounds of feedback)
- Prepare your clients from the jump by being crystal clear on expectations, communication and needs of the client in order to ensure a valuable offer delivery
- Share next steps immediately with the client after purchase, to avoid any buyer’s remorse or worry
- Have a guiding template for delivering your offer, to ensure a standard of quality across all clients
- Create reusable assets like workbooks, templates, checklists, courses, or guides to expedite client intake, communication, and offer delivery
- Plan interactions with the client, so they feel they are informed on their service progress, as well as a central place to ask questions and when they can receive answers
Having a process allows you to confidently provide results, regardless of how “custom” the result is, and innately lowers risk and increases value to your clients.
How a Productized Service Increases Perceived Value
So how does this connect back to the pricing models we talked about earlier?
While there are SEVERAL different ways you can package your service, it’s important to note that if you want to build a business that can grow independent of the working hours you put into your client work, then steering away from any hourly-based pricing is key.
Instead, building a packaged, productized service that can be sold at a set price, and can be consistently delivered on through a set process, will set you on a path of sustainability and profitability in your business.
This also can lead to increasing the perceived value to your client, leading to higher, fairer, pricing.
Here’s an example:
Say I own a lead generation agency, and I help increase quality leads for coaches. Because there are a wide variety of earned, owned, and paid lead generation out there, I custom create proposals based on the needs of the client.
This means that for some clients, I could be charging $2000 a month, for others I could be charging as much as $10,000 per campaign.
That’s a large variance and makes predictability near impossible for me in this business model, causing a LOT of unnecessary stress.
Here is where productized services can come into play: I craft a package where I know I can get my clients leads if they combine their social media with paid ads for leads. I offer a retainer package, where I do an initial paid ad set up, and funnels for their social media, then they pay monthly for me to manage their ads. I know the exact information they need to have, the type of content they need to create, and the ad budget they need to see qualified leads come into their pipeline.
I know the common perceived risks people have are:
- The cost of ads compared to the result
- Not having any luck with social media to see consistent leads
- How much time it will take to see results
So within my offer delivery process, I make sure to do the following:
- Provide an audit on their social media, funnels, and lead generation to ensure they have the requirements needed to see results within a 30-60 timeframe
- Provide immediate next steps after they sign on with me to set up their ads platform
- Craft reusable assets, like client avatar, offer document, paid ad asset checklist, free lead magnet converter template, to lead to success for my client
- Provide a reusable guide for my client to identify leads on their social media channel
Unlike an hourly process that would be based on each client’s need, I crafted an offer that was based on my ideal client’s needs, and already anticipated everything needed on my end in order to provide them their desired result.
This not only answered every possible question, roadblock or concern my client could have, it also gives them a clear roadmap of how this service would lead them to the result they were after, in the time frame they would like.
Finally, because I know the costs associated with delivering on this particular process, I can confidently price it at $5,000, making the predictability of revenue and profit much easier.
By creating a well-defined and productized service, backed by effective processes and addressing perceived value and risk, you can set a pricing structure that is both fair and profitable.
Ready to have your processes help you have full control of a stress-free business? Our Pimp My Ops offer was designed to help you craft and delegate a profitable offer delivery, so you can confidently scale your revenue in half the working hours. Learn how it works here.