How to Perform Price Formation for Services

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Pricing is the process of defining the sales value of your services. Normally the sales price calculation, is done in the opening of the business, but must be continuously revised for its optimization.

See also: Complete Pricing Guide

Specific features: Services, unlike products, have special characteristics that strongly affect the marketing strategies used, including price. They are:

a) Intangibility: The services can not be seen or touched. Therefore, much of its value is perceived through the price of it.

b) Perezability: Services can not be stocked. Thus, there are no costs involved, nor the benefits.

c) Variability: The services, however standardized, vary from customer to customer by several factors such as the environment, the service provider itself, among others.

d) Simultaneity: The services are delivered at the same time they are made. Which makes the whole process more complicated, since the pricing can change in real time.

How to do pricing for services?

Pricing services must be done in 3 major steps: costs, value and competition. The costs, as we will see below, are strongly tied to hiring staff. The delivered value is usually much higher than the cost, so it needs to be analyzed and, finally, the competition is the maximum value that can be charged.

How to Perform Price Training for 1 Services

I) Cost

The first step of all good pricing is the survey of the costs necessary to perform the service. In this case, we like to start by analyzing the service provided. The important thing here is to estimate the average time spent on each service and multiply it by the cost of the hour of the position needed to perform that function. It is worth remembering that if you are the partner doing the job, you should make the pricing with the hypothetical value of an employee performing the same function, not the salary (prolabor) you would like to withdraw.

The next step is to make a general survey of fixed costs of the company that involve rent, salaries, marketing investments among others. See the example below:

How to Perform Price Training for 2 Services

These initial numbers will serve only to give you the minimum result of the price of your service in order to ensure that you will at least pay the bills. However, most services are worth much more than they cost, a fact that leads us to the next step.

How to Perform Price Training for 1 Services

II) Amount

The next step is to think about the value of the service being offered. This is the most subjective part of the process that is somehow tangibilized by mark-up.

"Mark-up: is the term used to denote the difference between the cost and the price of the product."

Not coincidentally, the value formula is just PRICE-COST. That is, if the customer accepted paid the price of R $ 100,00 for a product that costs R $ 10,00, it means that he saw a value of R $ 90,00 in his service. Of course, this can not be so easily calculated for all situations, but we suggest that you always think about the type of problem you are solving for the customer and the extra stress or costs that this could cause if your service is not done or be poorly made.

For example, there are a lot of people who want to pay more money so that they do not have stress with poorly made domestic services, because this influences their productivity, etc. After this analysis, you should stipulate a mark-up for your pricing and insert it, in a pricing sheet for services, according to the example below:

How to Perform Price Training for 4 Services

III) Competition

The last, extremely relevant fact is competition. In many cases, the value delivered by a service is virtually incalculable. Imagine how much it is worth saving a life in the case of doctors? In these cases, the general market reference is who rules. This can be seen in two ways: (a) customer repayment capacity or (b) actual competition.

How to Perform Price Training for 5 Servicesa) Capacity of payment: Given your segment, what portion of your budget could be spent on your service? For example, when LUZ was just a small business consulting firm, we had the limitation of charging R $ 2.000,00 per month to our customers or we were in danger of changing segments, this was in spite of the growth in our experience and quality of service, even with virtually no competition.

b) Competition in fact: The number of other companies in your industry will also affect the price of your service. For example, if you are the only shop in your city, you can charge everything the customer can afford, but if you open another competitor, they will probably both charge lower prices than the previous monopoly.

How to Perform Price Training for 1 Services

This post has clarified how to make the pricing of your service? Here at LUZ, we offer management tools for companies, including a Excel worksheet ready for pricing services!

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2 COMMENTS

  1. Great article, I have long been looking for something so enlightening!

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