Designing Productized Offerings

April 2018

Hello there!

Let's start this month's pricing newsletter off with a two-part joke:

  1. What do April showers bring? Mayflowers!
  2. And what do Mayflowers bring? A potential customer base to be exploited by vendors who are willing to target their messaging to pilgrims.

OK, maybe I'm not ready to appear on an HBO comedy special, but the message is clear. As business owners, analysts, and salesmen, we always have to be focused on our customers. Understanding who they are, what they need, and how they think is the key to finding success in the business world.

Pricing Question from a Reader

I'm starting a service-based business, and I'm having a lot of trouble coming up with productized offerings. It's not that I don't know what customers want. It's just that I have no idea what to charge. Each job is going to be very different, so I don't know how much I should be asking for each package. Can you give me some hints?

Packaging your services into predefined options is a great idea.

It helps you by simplifying your sales process, and it helps your customers by simplifying their decision-making process.

As you are a new business owner, I'm willing to bet that many of your assumptions will probably change as you gain experience, knowledge, and a loyal customer following. What I can tell you is that many entrepreneurs fall into the trap of undercharging for fixed-fee, poorly-defined work. As a result, they find themselves stuck on projects that never end and making very little money for their efforts.

I'd suggest thinking about answers to the following questions:

  • Can you increase the predictability of your services? Often a constraint or two will make your ideal pricing strategy clear. For instance, apartment cleaning services often limit package availability by the number of bedrooms in a customer's unit. Similarly, some exterminators set thresholds by the number of square feet within a building.
  • Can you limit your public pricing to the first stage of your work? Consultants often perform strategy sessions as a service. Once the appropriate strategy is defined, you'll have more information to come up with a suitable price for subsequent steps. Not only will such a separation help you, but it will also lessen risks that your customers are required to take on, should they wish to hire you.
  • Can you charge by time rather than by job? This would allow you to shift risk from you to your customers. Although not ideal, this style of pricing is the norm in many fields. You can change your pricing strategy later, but use your experience as an hourly provider as a form of paid fact-finding. As you learn by doing, you'll get better at seeing what your jobs really entail.
  • Can someone else point you in the right direction? There are probably others who offer similar services to yours. Can you ask these people about how they priced their services? If not, can you at least collect their published packages? Remember, there's no guarantee that their pricing is even close to optimal, but this information may prove useful as a starting point.

It's nearly impossible to figure out a perfect pricing strategy right out of the gate. Fortunately, you don't have to do that. As a service-based professional, you'll learn more about your customers, their needs, and how you can help them as you go. Packages that might not occur to you now may become obvious to you in a month or two. Instead, focus on sustainability while you keep an eye out for commonalities in customer needs.

The more often you see commonalities, the more likely you'll be able to create standard offers, grow your business, and reduce your risk.

Questions come from readers like you. If you'd like your questions answered, send them my way.

♫This Q&A and many others are now available on the Pricing After Dark podcast.

Pricing in the News

From the Blog Archives

Notable Pricing Quote

"It's great to make your own choices, but there's a price to pay. I could've made more money or been more famous. I could be the current groovy guy. " -- Michael Keaton

Shameless Commercial Plug

Need help with your pricing strategy? Don't believe my birth certificate. "Pricing" is indeed my middle name. Contact me today.