Recession-Proof Your Service-Based Business With Strategic Pricing


Lori Shao is the CEO and Founder of Finli, a mobile-first payment management platform for service-based businesses and solopreneurs.

Many believe that small businesses are striving for profitability like large publicly traded companies that we see in the news every day. I am here to tell you: This is not the case. Instead, for many solopreneurs and small-business owners, profitability isn’t always the best indicator of business success but, rather, financial predictability and consistency are.

The best way to ensure financial predictability and consistency is to create a strong business foundation and a solid recession-proof pricing strategy with your current and future customers.

A company’s foundation is the compass business owners and employees need to ensure long-term success. The foundation is made up of a core purpose and mission: why you started your business, what your business’s key purpose is and what value it provides to your customers. Having a strong and clear foundation will help you build your business operations and understand the value the business provides its customers, helping you set your pricing and your place in the market.

Pricing is a reflection of your business and your brand. It is defined by how you stack up against competitors, communicate a certain level of value to your customers and set the standard for your product and services. Setting a price might seem simple, but when you take supply, human labor, brand value costs and profit margin into account, the price tag becomes a bit more difficult to establish. Your price point defines your business.

ALSO READ:  Four Ways Physicians Can Make The Leap To Entrepreneurship

Pricing Your Services

Service-based businesses need pricing models that are scalable yet flexible enough to account for unforeseen problems that come up with each customer. The fundamental pricing for service-based businesses is a bit more complex than product pricing. There is rarely an original price to reference, and when it comes to pricing time and value, it is a bit more intangible.

Instead of going with your gut, take a minute to research your market, understand market demand and seasonal pricing fluctuation, and lean into your business’s foundation to help you get to a price tag for your services. Answer the following questions:

• How much does my competitor charge for similar services?

• Are customers sensitive to pricing changes?

• When do people need my services? Is there a specific time of day or year with heightened demand?

• How much does it cost for me to provide a service?

Calculating Costs

The U.S. Small Business Administration recommends the following:

1. Identify your expenses, such as labor, material, insurance and permits.

2. Estimate how much each of those items will cost.

3. Use those figures to calculate how much it will cost to keep the business running.

Achieving Recurring Sales Through Strategic Pricing

With a clear understanding of your costs, coming up with an hourly or per-project rate becomes a lot easier, shining a light on your profit margin. Once you have established your ideal profit margin, it is time to think about how to encourage customers to become regular customers through simple pricing and benefits for recurring patrons.

ALSO READ:  How Binocs Promises To Help Keep Crypto Investors Out Of Trouble

A returning customer is often 10 times more valuable than a new customer to your business’s success as the cost of acquisition decreases. Onboarding new customers takes time, and there is no guarantee they will return. Recurring monthly service or establishing automatic renewals creates long-term relationships with your customers, meaning a reliable revenue stream for your business.

Rather than a large menu of individually priced services that are all similar in price, tiered and bundled pricing approaches have been shown to work best for service-based businesses. From Apple One to Disney+, bundling services will encourage larger purchases and save the customer time in selecting services. Offerings within each bundle should be complementary and create holistic value for your customer. A tiered pricing structure allows new customers to test out your services and recurring customers to size up or down depending on their current needs.

The importance of strategically and thoughtfully choosing a price is exemplified in pricing consistency. When a business is transparent and communication lines are open, consumers are tolerant of moderate pricing changes, which is especially relevant during inflationary times.

Accounting For Inflation

In June, U.S. inflation reached its highest point since 1981. Approximately 75% of small-business owners are experiencing a hike in supply costs and 31% are taking on debt just to survive, according to one survey.

ALSO READ:  Lessons Learned From The Pandemic

We have all seen the cost of food, energy, travel, goods, services and nearly everything in between increase in price in recent months, meaning increased labor, material and likely operating costs for small businesses. To understand how inflation affects your profit margin, compare your current pricing against your new baseline costs. Your profit margins have likely thinned.

How do you increase prices and not lose customers? Use an inflation calculator to help you establish an inflation price baseline. Since consumers know we are edging closer to a recession and cost of goods have increased, they are less sensitive to pricing changes, and transparency will help you not only retain them during price increases but build consistent cash flow and recurring sales.

When entrepreneurs start their businesses, many owners are unsure about pricing. With numerous new challenges every day, it is understandable why owners might find it daunting to price their services. But as small businesses all over America adjusted to life that lacked predictability over the past few years, I am certain that with a little guidance, businesses everywhere will continue adapting to changing market conditions and thrive.


Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?




Source link

admin

Nigerian Celebrity News and entertainment

Follow Us

Follow us on Facebook Follow us on Pinterest