The Pricing Paradox
Most service business owners undercharge. Why?
- Fear of losing customers
- Imposter syndrome
- Not knowing their true value
- Copying competitors blindly
The result: working harder for less money.
Understanding Your True Costs
Before setting prices, calculate your costs:
Direct Costs
- Materials and supplies
- Commission payments
- Payment processing fees
Indirect Costs
- Rent and utilities
- Insurance
- Software subscriptions
- Marketing expenses
- Equipment depreciation
Your Time
- Actual service time
- Preparation time
- Admin and booking time
- Travel time (if applicable)
Formula:
> Minimum Price = (Direct Costs + Indirect Costs + Desired Hourly Rate × Time) ÷ (1 - Profit Margin)
Pricing Strategies
1. Value-Based Pricing
Price based on the value you provide, not just costs:
- What problem do you solve?
- What's the alternative cost for the customer?
- What results do you deliver?
Example: A business consultant who helps clients increase revenue by €50,000 can charge €5,000 for their service—a 10x ROI for the client.
2. Tiered Pricing
Offer multiple service levels:
- Basic: Entry-level option
- Standard: Most popular choice
- Premium: High-end experience
This captures different customer segments and makes the middle option more attractive (anchoring effect).
3. Package Pricing
Bundle services for better value:
- Encourages larger purchases
- Increases customer lifetime value
- Simplifies decision-making
Example: "Buy 5 sessions, get 1 free" or "Monthly membership includes X services"
4. Dynamic Pricing
Adjust prices based on demand:
- Peak hours cost more
- Off-peak discounts
- Seasonal adjustments
- Last-minute availability deals
The Psychology of Pricing
Price Anchoring
Show a higher price first:
- Premium option at €200
- Standard option at €100 (looks like a deal)
- Basic option at €50
Charm Pricing
€99 feels significantly cheaper than €100:
- Use .99 for value positioning
- Use .00 for premium positioning
Decoy Effect
Add an option that makes another look better:
- Small: €30
- Medium: €50
- Large: €55 (makes Medium look expensive, Large look like a deal)
When to Raise Prices
Signs you should charge more:
- Fully booked: Demand exceeds supply
- No pushback: Customers never question prices
- Competitor comparison: You're significantly cheaper
- Skill improvement: You've gotten better
- Cost increases: Your expenses have risen
How to Raise Prices
Pricing Mistakes to Avoid
1. Racing to the Bottom
Competing on price alone is unsustainable:
- Attracts price-sensitive customers
- Reduces profit margins
- Devalues your service
2. One-Size-Fits-All
Different customers have different needs:
- Offer options
- Create packages
- Allow customization
3. Ignoring the Market
Know your competition:
- Research their prices
- Understand their positioning
- Find your differentiation
4. Emotional Pricing
Base decisions on data, not feelings:
- Track conversion rates at different prices
- A/B test when possible
- Review regularly
Implementing Your Pricing Strategy
Step 1: Audit Current Pricing
- Calculate true costs
- Analyze profit margins
- Compare to competitors
Step 2: Define Your Position
- Premium, mid-range, or budget?
- What's your unique value?
- Who's your ideal customer?
Step 3: Structure Your Offerings
- Create service tiers
- Design packages
- Set clear pricing
Step 4: Test and Iterate
- Monitor booking rates
- Track customer feedback
- Adjust as needed
Conclusion
Pricing is both art and science. The key is understanding your value, knowing your costs, and positioning yourself appropriately in the market.
Don't be afraid to charge what you're worth. Customers who value quality will pay for it.
Ready to optimize your pricing? Get started today with our 7-day money-back guarantee and use TLBO's analytics to understand your business better.