I met a business friend for dinner while he was in town last week. He told me he soon plans to strike it out on his own and he asked for some pointers about starting a service-based business. He was most interested in learning about how to establish pricing his forthcoming consulting business. This takes some examination because there are a lot of factors to consider. If I can offer any expertise to those starting a service-based business or for those who are uncertain if they are on the right track, this blog is it.
Establish specifics on what you’re offering and determine packages vs. hourly rates. Once you have an idea of the kinds of services you plan to offer, it’s time to decide if you’ll package your service(s) or create a standard hourly rate. There’s a lot of gray area in a service-based business, and because of this, I’m a fan of creating packages. Packages give you flexibility because there are often times that projects take more time than anticipated (in which case, you don’t want to nickel and dime your clientele) or less time than anticipated (in which case you don’t want to short change yourself if you’re locked into an hourly rate and you can make up for that time by focusing on more projects that fall into your service package). I package my management services, but also identify specific projects and services that would necessitate a move into an hourly rate such as technical assistance.
Decide what your time and expertise are worth. Experience is the backbone to pricing service work. Are you fresh out of the gate or do you have years of measurable experience under your belt? If you’re just starting out, you may want to price a little lower until you have a few clients who can vouch for your expertise. If you have experience, you should get paid for that expertise. For example, an ‘hour of time’ to a lawyer could be $300-$500/hour because they have the legal expertise to advise their clients accordingly. Your service is no different. Place a value on your time given your expertise and remain flexible if you find your value does not align with what your target audience is willing to pay.
Equally important is the amount of time you’ll spend on projects. Whether you’re just starting out or you’re a seasoned professional, you’ll need to get paid for your time. Calculate how much time projects are taking and determine a fair hourly or project rate. From there, you can decide which tasks fall into a packaged rate and which ones are more appropriate for an hourly rate. For example, I package my social media management services to include features like audience building, content development and posting and social media monitoring and engagement.
Align yourself with the right people and don’t settle. A service-based business is built on the relationship between you and your clients as well as the colleagues and associates with which you surround yourself. Always aim to associate yourself with the kinds of people that you want to attract more of. I’ve learned the hard way that this is easier said than done. In order to get our foot in the door or to make a few bucks, we often sacrifice ourselves. Try to avoid doing this. I recommend setting standards that define what you’re looking for in clients. This includes the industry, size of the business and location. This also includes clients whose values align with your own and who understand and value the service that you offer. If you chose to settle, I’ve found it’s only a matter of time before you realize you should have trusted our gut.
For a great read on pricing your services, check out Dawn Mentzer’s guest blog on the topic. She hits the nail on the head!