Correctly knowing how to price services and packages is something many business owners struggle with. Often, pricing by the hour is the default option for service-based industries and new businesses. But if you want to have financial freedom, this needs to change - and fast!
There are so many reasons why pricing by the hour isn’t a good option for you. Primarily, you’re tying yourself into the time for money trap. You’re limiting your earning potential by the number of hours and days you can work.
But also, pricing by the hour punishes efficiency. As you get better at something, you get faster. The faster you get, the quicker you can deliver things - and if you’re charging by the hour, the less you’ll earn. Someone else can produce a lower standard of work over a longer period of time and get paid more!
You’re the CEO of your business, and you need to ensure you’re doing all the marketing, lead generation and follow up, accounts, administrative tasks, as well as your client work. You want to be earning enough that you can do client-facing work for just a percentage of your time. When you’re pricing per hour, you can only charge for that client-facing time. And that leaves a lot of your time unpaid.
So why are package prices a better option for your business? One of the main reasons is they stop you pricing by the hour. Package pricing means you will know how to price every single time. You might end up with a couple of extra packages, which are kind of bolt-ons, but that’s ok.
What you want to be paid for is the result or transformation you provide. Your clients have an issue they want to resolve, and that desired end result is the ultimate in value. Deliver a solution, and that will have a higher perceived value to them. That’s what you can do when you price your services by package.
When you’re talking to clients, talk about the value and transformation. Focus on those things and not the tasks and timescales involved. Start thinking about the transformation that you offer. And what that is, particularly if you can say you’ve saved x client x amount of money, or x time a week. It’s vital you can offer that sort of reassurance to a client.
Having packages of services means you have clear levels and steps for the customer journey. Your customers can see what they’re getting and whether they’re getting you in a one-to-one capacity. Because every customer wants to work with you one-to-one and want to know how much it will cost. If they can’t afford it, they can see what other options are available (such as power hour calls etc.).
You’re also preventing the need for icky conversations. Talking pricing is an awkward conversation that no one wants to have. When you have transparent package prices, you’re only talking to those who want to work with you and know the costs involved. This is why it’s so essential that you show your prices on your website. It stops tyre kickers, and it helps your clients make informed decisions.
But be careful of putting your own money story onto other people. There are plenty of people who look like they don't have any money, yet go and have fantastic holidays or have amazing cars. It’s about their priorities.
Try and have an offer that’s a down-sell. So when someone says they can't afford your one-to-one, you can offer them a group program or something else. Think about not offering a discount to anybody. Work out alternatives instead. Discounting just devalues what you do and means that you'll get less in your pocket. If you want to work for specific charities or offer scholarships, set aside how many hours or places you want to allocate, and stick to this.
So how can you set your package pricing? Start by looking at what your minimum charge-out price per hour is. This isn’t the same as pricing per hour; this is simply what your time is worth once you’ve factored everything else in. Here’s how you can work that out (or you can use my pricing calculator here).
Look at your business costs - what are they? Where are you spending money? Think about coaching, mentoring and subscriptions, outsourcing help, as well as your more usual business costs like printing and Zoom etc. Think about what it is now, as well as what you think it might be in the future, because it can make a huge difference.
Next, think about your salary costs. This is the bit that everybody forgets about, because we forget about paying ourselves. But if you're not paying yourself, it's a hobby and not a business. So look at what you're paying yourself now and what that figure may look like in six months. Think about actually what you need it to be. You've got to pay the bills at home.
Remember that when you're thinking about your salary, that's gross. You need to take off tax, so take off roughly 30%, particularly if you’re a sole trader. What’s left is what you’ll be taking home.
Look at the hours you want to work and the hours that you do work. Think about how many hours you want to work and how that works out across the year. If you work less in the summer, factor that in.
Get to know roughly how much your monthly numbers are. You need your monthly salary to cover your living expenses and how many hours you want to work. Sometimes, it's shocking to see how much you need to be charging to cover your costs. If you're not working with many client hours in an average week, your hourly rate may be pretty expensive. Is that realistic?
Knowing your hourly rate can be a perfect starting point to see if you're underpricing. Because if you’re undercharging, you will end up working more and more hours, just to be able to pay your bills.
The aim is to get to the ideal number of hours you want, with your ideal salary. You can then get to the price you need to charge per hour and work out your package prices accordingly. And if that's too much for your industry, you either need to be able to justify why you’re more expensive than other people, or you need to look at your costs and look to bring them down. It gives you a reality check of what you need to do.
If you want to know more about pricing your packages, check out my Creating and Pricing Packages Masterclass. This 90-minute class will take you through the exact steps you need to take to price up your client packages. So head here to find out more!