Determining a pricing strategy for custom service agencies is as much of a science as it is a complex math equation. Where most service-based business models are built on predictability, the custom service team requires flexibility and agility.
When the end customer wants to know how much it will cost them, what’s the best approach?
Should you iron out as much of the detail as possible up front to reduce risk? Should you accept the risk in favor of your time and account for the unknown? Either approach will work in the right scenario.
Regardless of your approach to the project planning, your team can plan ahead to avoid three common pitfalls when it comes to finalizing the sell price.
Before considering how to price a service project for sale, make sure you are aware of all of your known costs directly related to taking on the project. Indirect costs can be important to be aware of as well. Even if you don’t pass them on to the customer, they may play a role in your communication strategy.
While it may seem obvious, ensuring that your sales team is speaking the same language when it comes to markup vs margin will help ensure overall success. Ultimately this multiplier is one of the important levers to adjust as your team learns more about the market.
Teams often fail to recognize all of the areas they provide value to their customers and give away service time, often in the form of strategy. This tends to be especially true when it comes to projects that require some ingenuity or innovation; team leaders will often provide strategy without calling it that in order to keep the project moving forward. If team leaders are giving time away due to need for guidance, it may be an indicator of underselling.
Once your team has committed to a final price, it is often easier to honor it than to break the clients trust. Make sure uncertainty is factored in, to whatever extent it is warranted.
2. Charging Too Much
As soon as one of your customers has a perception that you are charging too much, you can expect them to be looking for your replacement. Be vigilant in regards to monitoring your competition and how they price their services. Though this perception is not always something that you can control, you can set yourself up for success.
Be realistic. Is it really fair to expect to be able to get the same margin across all of your products and services? If not, how does that variability factor into your team’s pricing process?
One of the best ways to find the right pricing fit is to communicate with your customer. Ask them what they expect and be selective with who you take on. Be careful not to infer value where it doesn’t exist. If you are listening, your customers will be quick to let you know if this is the case.
3. Waiting Too Long to Make Adjustments
If your team isn’t currently holding project retrospective meetings, these post-project meetings encourage dialogue about what went well and what could have gone better. A process like this can be a great way to ensure that your team is learning from previous mistakes and continuing to grow.
However you are measuring success – whether it’s through margin or profitability reports, customer retention rates, or a variety of factors – be ready to adapt as your team becomes more educated on what to expect. Pricing is not a destination, it’s a journey.
Are your pricing tools ready to iterate with you?
Revisiting pricing strategy regularly should be part of a larger effort to ensure that your organization remains competitive and relevant within the larger ecosystem.
Ready to make a change?
For help with your pricing strategy or to see how you can manage this in Ascend, contact us for a demo.