Pricing Models for Your Service-Based Business

Monthly Retainers, Project-Based, and Packaged Services

Launching a service-based business often involves starting with lower rates to attract clients and gain experience. However, as your experience and clientele grow, it becomes important to move away from lower rates and develop pricing strategies that accurately reflect the value you provide. This can be achieved by choosing the right pricing model for your service-based business. 

Pricing can be challenging for many small business owners who may be unsure how to determine the monetary value of their services. In addition, many small business owners start billing clients hourly only to discover that it becomes increasingly difficult to boost profitability with this method. The more your expertise grows, the more efficiently you do your work. Therefore, a time-based pricing model encourages charging less for higher-quality services. This goes against the logical progression of charging more as your expertise and value grow. 

Updating Your Pricing Model

This is one reason why updating your pricing model as your business grows is essential to increasing revenue and boosting profitability. Initially, it may be acceptable to use hourly rates, but once the business and clientele are established, consider transitioning to a more profitable and sustainable method. 

The pricing model that can most benefit your business depends on several factors: your industry, your market, and how you typically work with clients. There are three popular pricing models to consider for a service-based business: monthly retainers, project-based pricing, and packaged services. Let’s go through these pricing models, discussing the pros and cons and the strategic applications of each.

Monthly Retainer Pricing Model

Monthly retainers involve a recurring monthly payment where clients pay a fixed amount for ongoing services. An example of a service-based business that would benefit from this pricing model would be social media management, marketing, or content creation services. These services are typically ongoing, as clients need these services on a consistent basis. 

Advantages of a Monthly Retainer Pricing Model

Implementing a monthly retainer pricing model has several advantages. It creates a sense of predictable income, including consistency in sales from month to month. This even distribution of income throughout the year makes budgeting much easier. It also helps to maintain a steady cash flow. 

Another advantage to the monthly retainer pricing model is that it allows you to generate revenue from existing clients rather than continuously seeking new clients. Once you’ve earned a client’s trust and delivered excellent service, you can nurture the relationship and maintain it long term. 

Predictable income, the ease of maintaining a budget, consistent cash flow, and sustainable client relationships lead to more stability and less stress for small business owners.

Disadvantages of a Monthly Retainer Pricing Model

However, there are a few disadvantages to the monthly retainer pricing model. Since payments are billed monthly (a time-based model), clients may associate your price with the time they assume it takes you to do the work instead of the value you provide.

For example, suppose a social media manager charges $1,000 monthly for their services. The client might assume this means they are paying for 8-10 hours of work. However, what they are actually paying for is the convenience of having someone else manage their social media content as well as the expertise they bring to know how to manage that content for optimal results. The time it takes the social media manager to do their work is irrelevant. 

Project-Based Pricing Model

The project-based pricing model consists of charging clients a flat fee for a specific project, regardless of the time spent on that project. Therefore, project-based pricing is not a time-based pricing model. Instead, it is a task and/or results-based pricing model. 

Granted, many projects have an expected timeline to completion, including progress points along that timeline to mark completion percentage. However, the completion percentage is based on how much work has been completed to that point and not how much time (how many hours) it took to complete. 

A good example of a service-based business often using a project-based pricing model is website development and design. These services are not typically ongoing. Instead, they are a once-and-done service that may only need to be revisited once every few years. 

Advantages of a Project-Based Pricing Model

An advantage of the project-based pricing model is that the price for services is tied to the desired results of the project. Using this example, a client might agree to pay $5,000 in exchange for a new website. The client is focused on the value of what they are receiving and not the hours it takes the web designer to complete. Because the focus is on value and not time, it is much easier for the designer to charge based on value. 

When this happens, the designer is encouraged to deliver a high quality product and work efficiently. They are as anxious to complete the project as the client is because spending more time on the project does not lead to more money. 

Project-based pricing models also make it easier for the client and service provider to project expenses and income, respectively. In this case, the client is given a fee of $5,000 for the project, and they know that is what it will cost. 

If we compare this to charging an hourly fee for the same work, the client doesn’t know if the project will cost $1,000 or $10,000. Of course, even with hourly-based pricing, most service providers will estimate hours to be expected. However, this might still cause stress for the client as they don’t know exactly what to expect.

Disadvantages of a Project-Based Pricing Model

However, there are some disadvantages to project-based pricing. One is that at the beginning of any project, the service provider bases their proposal on expectations, not actual time and resources. If a proposal is not well thought out initially, it can be costly to the service provider in the long run. 

This is a good reason why it is important to set expectations at the beginning of a project and clearly communicate what will be provided to the client (and what isn’t included). This pricing model, again, is based on deliverables and not time. Therefore, it is best to use past experiences to help you determine how much time and resources you expect to spend on the project to price it accurately. 

A method to minimize potential revenue loss when using project-based pricing is to include flexibility for add-ons or even include an hourly rate for additional work that was not included in the original proposal. If you want to avoid using hourly rates altogether, you can have pre-packaged add-ons for additional work that include a flat fee for a particular service or group of services. 

Worth mentioning is the related issue of collecting payments on a project-based pricing model. Some service providers choose to collect payments on a consistent basis, such as monthly. However, this might cause your clients to associate your pricing with time rather than value. Perhaps a better method would be to collect payments based on the percentage of completion or other related factors to the project.

Packaged Services Pricing Model

Selling your services as part of a package and offering multiple packages can provide budget flexibility for your clients and allow you to reach a broader client base. There are many ways to sell packaged services, including using a tiered pricing model and selling base price packages with add-on, a-la-carte options. 

A service-based business that might benefit from a packaged services pricing model would be brand design. Brand designers often provide the same services to multiple clients, with the differences being how many services are included. For example, a basic branding package might include creating an overall brand identity, including items like typography, color scheme, and logo design. However, many additional items could be added, such as business card design, social media graphics, and downloadable opt-ins. 

A business like this could offer tiered packages, each building on the previous package. In the example of the brand designer, the first package could include overall brand identity. The second package could include this in addition to social media graphics. The third package could include everything in the first and second packages, plus a downloadable opt-in. 

Advantages of a Packaged Services Pricing Model

There are several advantages to using a packaged services pricing model. As you can see from the example above, offering your services as part of a tiered package allows you to meet clients at varying budget levels. Perhaps a client needs your services but has a limited budget. You could offer a signature package with the basics they need without additional services. If their budget is more flexible, you could offer a premium package. 

Another advantage of using a packaged services pricing model, like project-based pricing, is that focuses on the overall services provided and not the time you spend doing them. Clients focus on the investment (cost) and what they get for that investment. They are not thinking about how long it will take for you to perform the services. 

Disadvantages of a Packaged Services Pricing Model

However, there are some aspects of packaged services pricing that you should consider. Successfully implementing them will require clear communication about what is included in each package and what is not. You don’t want a client to think they are getting more services than they really are for the price. If they expect more and find out that the price they are paying doesn’t include all they thought it would, they will be disappointed, and it can reflect poorly on you and your business.

After it is clear what is included and what is not, it is also important to be mindful of scope creep. This can happen when services performed go beyond the original agreement. At that point you need to consider if you will approach the client about the additional services and what to do about asking for additional compensation. 

Conclusion

Whether you opt for a monthly retainer, project-based pricing, packaged services, or a combination of them, aligning your pricing strategy with your goals and your market is key to your profitability and overall business success. Choose a pricing model that best showcases the value you provide so that clients are eager to work with you that also compensates you for the experience, skills, and expertise that you bring to the table.


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