HOW TO PRICE BUSINESS SERVICES

The reason you went into business selling services to customers was to make a profit. If you were giving away your services for less than cost, or just breaking even, you'd be operating a non-profit venture – or a business that's likely to fail. There are a variety of components that factor into whether or not a business is profitable, including location, leadership, market demand, competition, and so on. But one of the most important decisions you need to make to determine whether you turn a profit or not is how to price your services.

Service businesses can range from a sole proprietorship consultancy to mid-sized businesses with several hundred employees, some of whom go out to customers and perform anything from cleaning homes to providing information technology expertise to large corporations. Get your pricing strategy for these services wrong and you will create a problem you may never overcome. Get it right and you will dramatically increase the likelihood of creating a business that perseveres and takes care of you financially.

"It can just destroy you if you don't do it right," says Charles Toftoy, an associate professor at the George Washington University School of Business and Public Management. Toftoy has helped counsel 1,500 small businesses along with his graduate students. "It doesn't matter whether you're putting out a novel you've written or providing a service through a pest control company or you're a veterinarian. The bottom line is that pricing is extraordinarily important."

The following pages will provide a guide to how to price your services, the benefits and risks of certain pricing structures, and how to monitor and change the pricing for your services without alienating customers.