I always feel that the pricing of business services is a little like the card game Blackjack. You want to go as high as you can without going bust and losing the customer altogether.
What is the best price for your services? I would say that it is the maximum price that a customer is willing to pay for your services without having them decide that it is too expensive. Makes sense right? The only problem is that it is difficult to identify that magic price level, and the magic price level will be different for every prospect.
It can take time to find the ideal pricing level for the service that you are providing. But it is important that you do keep working on fine tuning your prices so that you can be hitting the ‘sweet spot’ as often as possible. Let’s look at the dangers of pricing at a level that is too high or too low and why it is so important that you aim to get it right.
Pricing Too Low is Dangerous
If you set your prices too low then you are really missing out. You are leaving money on the table and settling for less than you are worth.
Many entrepreneurs enter a new industry and feel that they have to compete on price to establish their business. They forget that price is only one of many factors that consumers take into account before making a buying decision. It is better to try and differentiate your business in other ways.
The consequences of doing work for minimal pricing are not good. For one thing, you will be doing damage to the industry in your local area and your competitors will resent you. In the lawn care industry those that price their services at ridiculously low levels are called ‘Lowballers’ and it is seen as the mark of a real amateur.
Remember that you are going into business to make money. If your prices are so low that there is barely any profit in it for you then you may as well stick with your day job. Don’t think that you will be able to make it up later and raise your prices either. If you try this your customers are likely to dump you and move onto another low priced service. In my opinion, customers that seek out low priced services are often the worst kind of customers to have.
Maybe you will still struggle to get customers. Many people associate low prices with poor quality and may be suspicious of what you are offering. I have heard people admit that when they are looking for a service provider they will generally call three or four in ‘The Yellow Pages’ and go with one that they feel is in the middle of the range of prices available.
When Should You Price Low?
If you are just getting started in a business like lawn care or pool cleaning then you may consider offering a low price to your first couple of customers. This will get you started and give you some experience and references. After that, you have to get realistic and remember that you are in business to make money.
Risks Associated with High Pricing
Generating leads for your business can be an expensive process. If you are pricing too high then you will not be able to convert many leads into new accounts. Most people will shop around so it is generally best if your pricing is in line with your competitors.
When can you get Away with Higher Prices?
Pricing at a level that is well above the market average can be possible if you can justify it. There are many reasons why you may be able to get away with prices that are considerably higher than some of your competitors. Having a reputation or a well known brand name can help. Other things that may reassure a client such as insurance or personal qualifications may also give you a free ticket to price high. A talented salesman can usually distract prospects from a high price ticket and focus their attention on other aspects of the service.
In some industries such as lawn care or cleaning there is no reason why you have to price your services at a similar level for every customer. With enough experience you will be able to mentally evaluate a prospect when you meet them. By observing them and their surroundings you should get a fair idea of whether they are looking for value or will accept premium pricing.
You should be able to price confidently when it comes to referrals. They have come to you in a buying mood and it should not be too hard to convert them into a new account at a healthy price. As long as the price that you give them is not way out of line with the price that their friend who referred them is paying you should be fine.
There are many approaches to pricing. You have to consider your costs and your profit margins. You also have to consider the perceived value that you are offering to your prospects. A good knowledge of market prices is also useful. But pricing is much more complicated than this. One thing is for sure; it is well worth putting in the time and effort to understand the importance of pricing to your business and to find prices that will maximize the rewards that you deserve for your work.
You can read more about how to price for your lawn care business on our blog.
About the Author: Steve Sutherland runs StartaLawnMowingBusiness.com, a website dedicated to providing first rate advice to lawn care startups. For more information on how to go about pricing for a service business like a lawn mowing company.