Providing services online is a fabulous way to earn money and do work that brings you joy and fulfillment! But most service providers face a major obstacle when they’re first starting out: deciding how to charge their clients. Understanding different types of pricing strategies is crucial before you can decide which model is best for your business.
What Is a Pricing Strategy?
A pricing strategy outlines how much, in what way, and how often you will get paid for your services. Not all service providers earn money in exactly the same way. Your niche, scale, experience, and availability all play a role in how to charge your clients.
It’s great to compare your offerings and skills with other professionals in your industry, but even that can only take you so far. Preparing to make pricing demands takes a lot more thought and consideration than you might think!
Pricing too low can deter clients from your business—it suggests you may be less professional or lacking quality. Pricing too high (or in a confusing way) is also a deterrent, as not all of your potential clients will have the budget or the confidence to hire you at a higher figure from the get-go.
Even if you decide on the perfect pricing plan, you have to be ready to defend your decisions when clients call your services into question. No matter which types of pricing strategies appeal to you, you have to be sure they make sense for your unique business.
3 Key Types of Pricing Strategies for Service Providers
Before you arrive at your final pricing decision, take these three types of pricing strategies into account. You may find yourself reconsidering your plans after you understand all there is to know about the pros and cons of each pricing plan.
Hourly Rates
An hourly pricing model works well for beginner service providers or subcontractors. Less experience means less certainty about how long certain projects or services will take. Charging hourly ensures that you’re not left drowning in an unexpected workload without compensation!
Hourly types of pricing strategies also work best for services that fluctuate in intensity between seasons. For example, a copywriter specializing in content for tax businesses would likely have a heavier workload as tax deadlines approach. Better to make extra bank when you’re extra busy!
But there’s no need to worry about brain fog driving your hourly rates too high. You can simply apply a cost cap on your services as you get to know yourself a little better. For example, you can charge $30 per hour for up to 8 hours—so the most your client will need to pay is $240.
Drawbacks to Hourly Rates
Of course, as you get better at your business, you’re likely to work faster. You shouldn’t be making less money for greater experience and expertise! An hourly rate can become unfair and unsustainable at a certain point in any service profession.
While you may be tempted to raise your hourly rate as you gain experience, hourly price increases are a huge turnoff to buyers. Once you’ve outgrown your hourly pay rate, it could be time to consider some other types of pricing strategies.
Package-Based Pricing
Package-based pricing works best for one-and-done services (or standard, repeated work every month that’s based on one set deliverable). The client hires you to complete a project from start to finish, then you part ways (or move on to the next individually-priced package).
Here are some examples of packaged services that can be individually priced:
- Social media audit
- Sales page design
- Coaching session
Services that appear on a menu with concrete pricing (as you usually see in a restaurant) are attractive to clients! It’s black and white—affordable or not. And unlike hourly pricing, package pricing rewards service providers for their efficiency. You don’t have to work more to make more.
Challenges of Package Pricing
Types of pricing strategies that ask clients to pay per package are tricky. You have to nail the cost-time-value balance in order to avoid burnout and keep things fair between your business and your client’s.
Keep track of your data when working on packaged services. If you or your team are spending too much time providing the service, you may need to increase productivity, streamline your systems, reduce deliverables, or raise your prices.
Retainer Services
What about pricing for long-term clients who require your services regularly? For example, content managers typically work with clients month after month to maintain their online presence. Continued services require a continual payment strategy.
A retainer payment is made in advance of services to ensure your commitment to ongoing labor. In order for this type of pricing strategy to work, you should be working roughly the same amount of hours each week.
Although a retainer fee guarantees consistent effort and an ongoing commitment, it doesn’t necessarily guarantee results! Be sure to manage client expectations if you decide to charge a retainer cost for your services.
The Cons of Retainer Services
Add retainer pricing to the types of pricing strategies you should consistently track data for. Similar to package pricing, you need to make sure that the amount of time, energy, and resources being put in justify the pay you’re getting out month after month.
It’s common that long-standing clients might expect a price break for their loyalty. That’s all well and good if the metrics make sense! You need to consider fluctuations in your workflow before committing to a lower price point with your clients.
What’s more, there’s always a risk of becoming too comfortable with your regular clients! You don’t want to find yourself completely dependent on their business with no leads or other reliable business income to turn to.
Understanding different types of pricing strategies is important for building your business. It’s wonderful being a service provider with so much control over who you work with and how often! But you don’t want pricing to be the thing that limits your options. Consider this post before you lock in your pricing menu.
Running your business doesn’t have to be complicated—get our best tips in these other articles:
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- How To Track Your Typical Consumer Journey Using The Perfect KPIs