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How to Charge Customers for Services: A Guide

How to Charge Customers for Services: A Guide

Knowing how to charge customers for services is crucial to any successful business. Here’s everything you’ll need to consider before talking about money.

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Let’s say you’ve been in conversation with a potential client for a while now and are ready to talk about pricing. But how do you best approach this? 

We’ve got your back. Here’s our guide on preparing yourself for a discussion on costs and coming up with a pricing strategy for clients. 

What is a pricing strategy?

A pricing strategy includes the processes and methodologies we use for the pricing of services or products that our business provides. This dictates what we should charge our clients. There are different pricing strategies to choose from based on our priorities and business needs.

While many factors determine how to charge customers for services, not all of the approaches may work for our purposes. When it comes to choosing how to price a service, weigh the pros and cons of each option. Here are some examples.

1. Hourly pricing

Hourly pricing is extremely popular among starting freelancers. This is done by estimating the hours of work that a project will take, or using time-tracking software to measure how long the project actually took to complete. To understand the benefits and limitations of this type of pricing, we made a list of the pros and cons.

Pros:

  • Great for starting out
  • The most objective and transparent method
  • Can be measured and checked by the client

Cons:

  • Tracking hours is really tedious
  • Doesn’t leave much room for growth
  • Price can easily be miscalculated
  • Hard to ensure the set price is right

Hourly pricing is a good option to start with because it’s transparent, easily calculated, and takes into account extra scope or unexpected additional time needed for project completion. But this way of billing clients might be limiting if we know that our services are worth more than payment based on an hourly rate and if we’re not factoring in overhead expenses or time spent on bookkeeping. Plus, it’s incredibly tedious to keep track of hours. 

2. Project-based pricing

Project-based pricing determines what a client will pay to complete the project, and doesn’t track the number of billable hours worked. This allows us to potentially earn more income in a shorter period of time. This approach links the price to the end result of the project and can include a predefined scope of work that we expect to include. Compared to hourly pricing, here are some benefits and drawbacks to this type of pricing.

Pros:

  • Lets us focus on an end result
  • Time won’t be a constraint on making money
  • Gives us flexibility with our time

Cons:

  • Not as transparent as hourly pricing
  • Doesn’t account for any extra time spent on the project

Even with all the benefits of project-based pricing, it may be difficult to determine how much to charge per product. That’s why it’s important to learn about different pricing strategies to determine what we should use for our own business’s coaching prices.

3. Daily fees

Daily fees are charged for each full day (generally 6–8 hours) of work completed and are a great option for ongoing projects. This method of calculating prices is easier to estimate and fairly predictable for our clients and focuses on tasks completed and deliverables submitted rather than hours worked. Here are the pros and cons of charging daily fees.

Pros:

  • Paid for a full day of work even if we spend time on multiple projects
  • Makes scheduling easy — no detailed tracking needed
  • Useful for medium-duration projects

Cons:

  • Limits our availability to take on multiple projects
  • Clients may require daily deliverables
  • Still need an estimate on the project duration 

While charging a daily fee is suitable for certain projects, this option has its drawbacks. For example, a client may be upset if the estimated project time is off and the quoted price is inaccurate. 

4. Value-based pricing

Value-based pricing is determined by how much value our product or service is providing the client and is commonly done through a monthly retainer. Sometimes, we can estimate this value from existing and projected metrics, but other times, the benefits may be unquantifiable. As coaches, we should be upfront with our potential customers and emphasize the value of our services so that we can better anchor our price point. 

Unlike the previously mentioned pricing models, there’s no formula to calculate the amount of money a business owner might charge for a project based on value. This method also doesn’t account for the amount of time spent per project. Here are some of the benefits and drawbacks of this model. 

Pros:

  • Allows us to earn based on the value of our work
  • Increases a client’s involvement with the company by showing them how they benefit

Cons:

  • Value is subjective, and offers may be dismissed
  • It might damage the client’s profit margin and make it harder to get this type of project again

Although few guidelines can help us determine a value-based pricing structure, here are two factors we could consider: do we have a lasting relationship with the client, and what’s their budget?

As entrepreneurs and small-business owners, we’re always hopeful that a favorable new customer will become a long-term connection. We should set different prices based on the duration or potential duration of our relationship with the client or how interesting and enriching the project looks.

Additionally, our customer base often understands how much value this particular project will bring them, so it’s wise to ask for their budget before estimating a flat fee. If we charge a lower rate for a client who expects to pay more, we’re undercutting ourselves by underestimating the value our clients know we can provide them.

Common pricing mistakes

The single most helpful thing a business owner can learn in relation to setting prices for clients is how to make a value proposition. This is a simple statement that summarizes how our services benefit the customer, and why they should choose us over our competitors. We can construct a great value proposition by answering the following questions:

  1. What are the customer's wants, fears, and needs?
  2. What are the benefits, features, and experiences we can offer?
  3. How do these offers make the customer’s life better?
  4. Which customers are we going to serve?
  5. Which needs will we meet?
  6. What relative price will be acceptable to customers?

Once we’ve put forth a convincing value proposition, we should also take into account our clients’ purchasing power, and keep our prices flexible based on other factors. Changing prices for different clients based on their budget, geography, and the package each customer selects can be useful for coaches looking to make use of the value-based pricing method.

Recommendations

As coaches, we can offer our services to clients in a multitude of ways, including hourly, with a retainer fee, or with packages. This will also affect how and how much we charge our clients. Some other factors that may influence this include:

  • Using packages: This allows us to focus on results rather than being paid by the amount of time spent working. Packages also allow us flexibility in dealing with customers with different needs to receive the best value possible from our services. 
  • How much money we want to make: Although this is by no means the only metric in determining a final price, we should be aware of potential profit margins in addition to our salary and overhead expenses. This can provide a rough estimate of our final price point.
  • Competitor prices. While price-fixing (or matching prices) isn’t always the most profitable, it’s good to get an idea of what prices potential clients may expect based on the market.

Once we’ve decided on a pricing strategy and discussed how much our clients will be charged, we should enter into a written fee agreement, listing out the details to avoid miscommunication and future complications. 

If coming up with a pricing structure seems daunting, remember that our services have potentially life-altering value for our clients. With all the tips listed above, and a bit of honest consideration, you’ll find the best prices for your services.    

At Practice, we understand the importance of creating personalized experiences for our customers. Try our all-in-one client management system today to help you and your clients get the most value out of your coaching business.

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