Pricing your services can be an ongoing challenge for independent business owners. One simple method that works for most is competitive pricing. Learn what it means and how to use it for your business.
As an independent business owner, you can’t afford to go wrong with your pricing. Your pricing helps clients decide whether they want to invest the time and effort to work with you. It can also determine whether you’re generating profit after you’ve covered all your operating expenses.
In this article, we’ll cover one specific pricing model that’s especially relevant for small businesses — competitive pricing.
- How does competitive pricing work?
- When to use a competitive pricing model
- Should you go high, or should you go low?
- Critical factors you should price for
- How to make it easy for clients to pay you
How does competitive pricing work?
A competitive pricing model, also known as competitor-based pricing, uses the prices of your competitors to define your business’s price points.
When using this pricing strategy, you’ll research how your competitors are pricing services that are similar to yours. This will give you a sense of the “going rates” in the market. For instance, if you’re a photographer, you will see what other photographers in your area are charging and use that as a reference point for setting your prices.
Based on what you discover, you may decide to:
- Price your services higher – You aren’t capturing the quality of clients that you’d like, and it turns out your competitors are pricing higher for similar services. Following competition-based pricing, you can raise your prices to capture higher quality clients.
- Price them lower – If you don’t have any market share yet with your business, you might consider pricing your services lower so you can gain more interest. Or, if you see a lot of churn as you’re generating leads and nurturing them, it may be a sign that your prices are too high.
- Make no changes to your pricing – You might find that your prices are just right based on your competition, needs, and clients. If so, you can explore other competitive pricing strategies to stay on top, such as offering price matching.
When to use a competitive pricing model
A competitive pricing model can help you if your niche has many other small businesses providing similar products and services to yours. Your business is more likely to succeed if your pricing models are similar to what’s already working well in the market.
Competitive pricing models are also useful for independents who are trying to enter a competitive market. If you want to quickly grow your customer base, you can set your price lower than your competitors. However, you should take this approach with caution and consider your profit margins and reputation first.
You can always use a competitive strategy with other pricing strategy examples as well–you don’t always have to pick one or another.
Should you go high, or should you go low?
When deciding how to set your prices after you’ve done competitor research, there are a few things to consider.
Before offering your products or services at a lower price, think about the potential signals that potential clients may get from this:
- A client might think your service is a good deal because of how much they’re getting at a low price. However, low pricing for a small business can also imply low-quality or “basic” services.
- Low pricing may indicate that you’re a novice or don’t have the same level of experience as your competitors.
The common denominator in all of the above scenarios is that clients may not see your value. If you’re selling a top-notch service, you want to ensure you’re being paid what you’re worth.
You should also consider how much it costs to run and maintain your business. Price too low, and your business model isn’t sustainable. Regardless of the pricing method you choose, you should always be able to cover your cost of production at a bare minimum.
On the other hand, raising your prices too high could mean you’ll risk losing clients. The only time you should be looking at high or premium pricing is if your service is unique to the market or you have exclusive offerings that nobody else in the market can provide. This would warrant a luxury pricing strategy.
Critical factors you should price for
While price is important, you shouldn’t look at pricing alone as a way to stand out. Clients often look at a combination of value and convenience in addition to the price when they’re choosing services.
When you research your competitors, evaluate what they’re offering for their prices. Ask yourself what you can do to bring more value for the same price or provide more convenience for the client.
Your value is determined by the customer’s perceived benefits they’re getting from you in relation to what they’re paying for your service. It involves the following:
- The quality of your service
- The customer service experience
- What you’re offering versus what your competitors are offering for the same price
- Your brand impression
As an independent business owner, you offer a personalized experience. Building strong relationships with your clients is critical to your value, and ultimately, getting repeat business deals and referrals to new clients. That’s why you should focus on providing a service that wows your clients and makes them feel you’ve gone above and beyond your competitors.
Talk to satisfied, long-term clients to find out why they prefer to work over your competitors. If they think you’re a superstar when it comes to delivering a great experience, you’ll want to incorporate this into how you calculate your optimal pricing and market yourself.
75% of clients do not think twice about switching over to another brand if they are more convenient to work with. If a client has to submit a lot of manual paperwork or send multiple emails to hear back from a business, they are likely thinking of finding a new business relationship.
To assess your business’s convenience, walk through the client journey yourself, from sending an inquiry to final delivery. Also, look at reviews from previous clients to identify what they didn’t enjoy about working with you.
Other important aspects to consider are speed and access. How quickly can you move the client through your service process, and how easy is it for them to understand how much you charge? How easy is it for the client to gain access to you, especially in an emergency?
Pro Tip: Optimizing your entire clientflow is key to offering value and convenience. When the process of researching your services, booking, and moving forward with a project is seamless, you’ll create a better client experience and brand reputation.
How to make it easy for clients to pay you
One of the best ways to make your pricing strategy easy and please clients is by using HoneyBook’s clientflow management platform. With HoneyBook, you can easily create interactive, dynamic pricing guides to send to your clients online. Clients can review your services, select the services they want, and pay online in a single step.
HoneyBook’s features are also fully customizable, so you can apply your branding throughout. It gives you the best option for showcasing your pricing and moving forward with booking, all in a seamless, branded experience.