By knowing how to properly price for their services, services companies can offer clients a value-based, fixed-price billing model.
A recent accountingWEB article discusses the three building blocks of such a fixed pricing model:
- Examine personnel costs: Past history with similar clients provides the basis for determining the staff hours needed for a particular project.
As the accounting WEB article says, the best way to go about this is to understand comparatives. Companies need to check out what other businesses are charging, but not just any other business: use ones that are the same size, revenue and face the same challenges as theirs. They need to understanding comparative analyses of like-minded companies.
It’s just like real estate. Regardless of price, companies should always have a specific value proposition they’re offering. What differentiates you from the competition? It should never be just about price even though price is important.
At the end of the day, if you offer more value, that’s worth more than a cheaper price.
- Examine technology costs: Automation can save money, but SaaS costs can add up quickly.
- Plan for change: There are times the client will need additional services not considered in the initial billing calculations. How will you handle change orders?
In our experience, companies have a difficult time charging for services by the hour. A good way to put customers at ease is to build in contingency pricing: Bill them a bit extra for the service, and then if they have issues or special projects, they don’t have to nickel and dime every problem; it’s already covered.
Source: accountingWEB, September 2012