How to price your services: A guide for agencies and consultants

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How you price your services will have a direct impact on your sales, profits and brand identity. Choosing the right price for your services is therefore a key factor in your business’s success.

But pricing services can be tricky, especially as you’re not dealing with a tangible product with set characteristics and specifications. Luckily, there are a number of pricing strategies out there that small business owners can use to set the price of their services.

In this article, we’ll walk you through 14 pricing strategies with examples to help inform you on the best pricing choice for your services. We’ll also discuss the importance of choosing the right price for your services and why you should consistently monitor your prices throughout the lifetime of your business.

Table of contents

14 pricing strategies

  1. Competition-Based Pricing
  2. Cost-Plus Pricing
  3. Dynamic Pricing
  4. Skimming Pricing
  5. Penetration Pricing
  6. Premium Pricing
  7. Freemium Pricing
  8. High-Low Pricing
  9. Hourly Pricing
  10. Project-Based Pricing
  11. Value-Based Pricing
  12. Bundle Pricing
  13. Psychological Pricing
  14. Geographic Pricing

The importance of choosing the right price for your services

Pricing services is all about finding that sweet spot between generating enough sales and making a sustainable profit. 

If you charge too much, you could end up losing sales to your competitors. But if you price your services too low, you may fail to achieve a profit.

The price you choose also helps you position your brand when you enter into your target market. If you wrongly price your services, you may risk hurting your brand image. But if you price your services just right, you’ll make an impact straight out of the gate by attracting your ideal audience, building positive brand recognition and most importantly generating revenue.

The ideal price for any business is, therefore, when:

  • Your client or customer feels that they’re getting the best value;
  • You pricing strategy helps you to stand out from the competition; and 
  • Your business generates enough sales and profit margins to meet its goals.

An infographic showing pricing strategy for business

Quick Tip: Your pricing has a direct impact on your business budget. Knowing how much you’re going to charge can help you estimate your revenue, fixed and variable costs, and forecast any additional workforce you may need in the future. Learn more about how a business budget can help to inform your prices and vice versa by reading our guide on how to create a business budget

How pricing strategies help you make the right decision

A pricing strategy is the method used by business owners to price their products or services. Each pricing strategy prioritises certain factors over others to calculate the best pricing.

The right pricing strategy can help you achieve your financial goals, keep clients satisfied and help you to build a sustainable business in the long run.

Figuring out the best pricing model for your business is just like any other skill that you can become an expert in. Once you feel comfortable, you’ll stop feeling overwhelmed and instead feel confident in your prices.

Why choosing the right price is challenging

If you’re running a service business, such as an agency or consultancy, you already know that pricing is subjective as no two jobs are exactly the same. That’s because each client, customer or project scope is unique and comes with varying expectations and requirements.

Further, value is subjective and means something different to each customer or client. That’s why it’s so important to understand what your brand stands for and who your target audience is. Value can mean high price to one person and low price to another. Keep that in mind as you consider what prices best align with your business model.

An infographic defining what pricing service value is for customers

Take a content marketing agency, for example. They might have one client looking for long-form blog posts and another looking for content for landing pages along with custom video animations. Both services are objectively valuable, but the value levels rise and fall based on the client’s end goals, pain points and needs. 

The challenge is ensuring that the pricing strategy for each unique service is the right fit for the job at hand, your target market and ultimately your business goals. Because the aforementioned services vary drastically in scope, they require different time commitments, skills and execution strategies. Therefore, it wouldn’t make sense to price those two services identically.

But what if after you choose set prices one service sells very well and the other isn’t gaining traction? At that point, it may be time to pivot by lowering the price point for the underperforming service to attract more interest. Once enough clients have signed on, the agency could increase prices again to match increased demand.

Alternatively, the content marketing agency could bundle these two services together to prop up the underperforming service and allow clients to take it for a spin at a reduced price point. For example, their clients could buy a package wherein they get four long-form blog posts and two landing pages with custom video animations per month, or vice versa depending on their priorities. 

This way, they get to try all of the services on offer while still placing a priority on their highest needs. If they end up finding the previously underperforming service valuable, they can purchase it at its regular increased price point. 

As you can see, pricing your services can be highly challenging and even after you land on a winning pricing strategy, you may choose to experiment with other strategies as your services and business evolves. 

That’s why it’s so important to consistently monitor your prices and adjust need be. More on that in a later section.

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What are the different types of pricing strategies? 

There are several pricing strategies that businesses can adopt depending on various internal and external factors. It’s important to carefully analyse these factors before choosing a pricing strategy for your business.

These factors could include: 

  • Your goals
  • Overheads and other costs 
  • Your budget
  • The type of services you’re offering
  • What your competitors are charging
  • Who your target audience is
  • Target audience buyer behaviours
  • Target market demand
  • If the target market is crowded or empty
  • Time of entry into the market (i.e. first or last)

These factors and more will inform your ultimate price points and pricing strategy. If you follow a strategic pricing process, you’ll give yourself a better chance of making an informed decision. That said, you may not get it right the first time, but you can always adjust and start from scratch need be. There’s no rule to how many times you can change your prices, but once you build a customer base, consistency and expectations will come into play and matter more.

An infographic showing the pricing process

Quick Tip: Understanding your target market and competitors are key when determining how to build a brand that customers love and ultimately choose prices for your services. To learn more about how to determine exactly who you’re selling to, how and why they make purchasing decisions and who your competition is, read our in-depth guide on how to conduct market research for your business idea.

Let’s examine fourteen popular pricing strategies and how they work for service businesses.

1. Competition-based pricing

Competition-based pricing, or competitive pricing, is one of the most popular pricing strategies out there. Businesses who adopt this pricing strategy let competitor prices guide the price of their own services.

For instance, a business can either match competitor prices or charge slightly lower or slightly higher than its competitors.

The advantage of this pricing strategy is that it helps you tap into your competitor’s target market pool. For example, clients may choose you over the competition because they feel you’re providing more value for the same price.

Competition-based pricing also keeps your prices relevant to the current industry rates and standards.

One major drawback of this strategy is that it rarely takes into account the actual costs incurred by a business. So, if your cost of providing a service is higher than your competitor’s cost, you’ll end up making less profit than them.

Competition-based pricing is ideal for industries where slight changes in pricing can affect purchase decisions. For example, a domain service provider can use competition-based pricing to offer slightly lower prices than the competition to attract new customers or influence customers to leave the competition in favour of their lower-priced service. 

Whether you choose to price higher or lower depends on your target audience and business goals. If your goals are to provide highly accessible services for a wide audience, lower prices may suffice. However, if your goals are to attract a niche audience based on unique value adds higher prices would make more sense.

2. Cost-plus pricing

In this pricing strategy, a business is primarily concerned with two things:

  • Covering the cost of providing a service
  • Earning a pre-decided profit margin

To price their service, they will simply add the pre-decided profit margin to the total cost.

For example, let’s say it costs you £500 to provide a service to your client, and you want to keep a 20% profit margin on each successful sale.

Your final price would be: 

£500 + (0.2*500) = £500 + £100 = £600.

The advantage of cost-plus pricing is that it’s one of the simplest pricing strategies out there. With only a few calculations, you can arrive at a price that covers your costs and guarantees a profit on each sale.

At the same time, this pricing strategy fails to consider what your competitors are charging and how customers feel about your prices. If your costs are higher than those of your competitors, you might lose sales by being perceived as too expensive.

On the other hand, having lower costs can accidentally lead you to underpricing your services, which might make customers perceive you as low-quality when that’s not the case.

Cost-plus pricing is ideal for businesses and contractors that want to execute a cost leadership strategy and build trust with clients by being transparent about their pricing.

For example, a small content writing agency that helps businesses create ebooks may decide that they want to make a 20% profit on every ebook they create. Regardless of what any competitor’s providing a similar service charge, they simply want to maintain a 20% profit margin on every completed ebook, no matter the project scope. 

As they grow their audience and boost brand recognition, they may decide to increase their profit margin or switch to a different pricing strategy to enter into a new target market. 

3. Dynamic pricing

Dynamic pricing, or time-based pricing, is a popular pricing strategy that adapts to fast-paced industry trends and customer demands. This pricing strategy is also known as real-time or surge pricing, as the prices vary to reflect the changing market conditions.

The biggest advantage of using dynamic pricing is the ability to maximise profits based on supply and demand. However, if your prices fluctuate too often, your customers may end up feeling annoyed or dissatisfied because of a lack of perceived consistency. 

Without consistency, customers may struggle to set expectations which could lead them to choose a brand with more consistent pricing. On the other hand, not knowing what to expect could be exciting to a certain type of customer, which leads back to the importance of understanding who you are selling to and what their buying behaviour is. 

Dynamic pricing is ideal for industries with constantly changing supply-and-demand trends. For example, an event agency can price tickets based on the number of seats available at a venue as well as customer demand for the event. A ticket could cost £100 two weeks before the event and £50 the night before if there are vacant seats the agency is trying to fill. 

4. Skimming pricing

A skimming pricing strategy involves charging the highest introductory price for a new service in and then lowering it over time.

Price skimming is rarely used by service businesses but can work like a charm if you’re providing unique services that no one else is offering in your region.

The advantage of price skimming is that by charging a high initial price, you can easily cover your startup costs, earn greater profit margins and quickly build up your brand’s perceived quality.

However, the skimming pricing strategy isn’t always effective in the long run, as you may end up upsetting your early customers by lowering your prices later on and therefore lowering your business’s perceived value. 

Skimming pricing is ideal for businesses that are offering a new, unique service that no one else is selling. For example a tourism business with exclusive access to an unexplored region can use price skimming to charge a high introductory price. As other tourism operators gain access, the business can gradually lower its prices to match industry standards.

5. Penetration pricing

Penetration pricing is the complete opposite of price skimming. Instead of charging a high introductory price, this strategy involves charging a low initial price to attract customers and obtain a market share in a crowded market.

The advantage of using the penetration pricing strategy is that it helps you to persuade your competitor’s existing customers to buy your service because your prices are too good to miss. This can help you to quickly increase your customer base.

The downside of penetration pricing, however, is that you may get forced into a price war with other businesses, which makes it inefficient in the long run. If this happens and you can’t afford to lower your prices any further, you may lose all of your customers to the next business that comes along offering cheaper prices. 

Penetration pricing is ideal for new businesses looking to enter a highly competitive market. For example, a new translation industry can use penetration pricing to charge a low initial price to tempt potential customers into trying their service. As the translation services they are offering are not unique and the project scope is relatively straightforward, the new business could attract customers that are more concerned with maintaining a steady output than producing high quality work. 

6. Premium pricing

Premium pricing, also known as luxury pricing, is used by businesses that want to sell at prices higher than the industry average.

The focus here is to create a higher perceived value of your services in the minds of the select few who can afford to buy from you.

The benefit of using the premium pricing strategy is that you won’t need to bargain with your potential customers. You’ll also be able to earn a much higher profit margin on each sale because of your high markup.

However, premium pricing comes with its own challenges. For instance, you might need to spend money extensively on marketing strategy and advertising initiative to maintain a high-end brand image and attract your ideal audience. 

Premium pricing works well for businesses selling luxury services to a high-end market and can justify high prices with a unique value-add, such as a certification or celebrity status. For example, a business coach that used to work at a high profile company and has a big following  can charge a premium price for her services because of her influential status and powerful network.

7. Freemium pricing

Freemium pricing is a popular strategy amongst SaaS businesses. It involves offering a basic set of services or features for free, along with the option to upgrade to a premium plan with more features.

The biggest advantage of freemium pricing is that it helps you build a large customer base that you can nurture into paying customers if they’re happy with your business.

A potential drawback could be that customers are so happy with the free plan, that they’re not willing to pay for an upgrade. On the other hand, you can also lose customers by offering very limited features in your free plan and charging too much to upgrade to your premium plans. 

To avoid huge price gaps, SaaS companies often choose to offer different service prices based on varying price levels, for example free (£0), basic (£50) and pro (£150). This way, customers can make their way up the tiers as they develop more needs for enhanced features, without feeling anxious about significant price increases in one fell swoop.  

Freemium pricing is ideal for SaaS businesses who want to generate leads and slowly nurture them into paying customers. For example, a SaaS business can offer a free plan with limited features and offer various calls-to-action through campaigns or advertisements to incentivise users to buy a premium plan. 

8. High-low pricing

The high-low (or hi-low) pricing strategy involves charging a higher initial price to make the most of a new or unique service, but as the service loses its desirability over time, dropping prices to match the industry average.

High-low pricing can easily be confused with price skimming, but there’s a slight difference between the two. In high-low pricing, abrupt price changes are normal. But price skimming involves lowering your prices gradually over time.

The advantage of using high-low pricing is that you get to cover the costs of your services quickly and make a high profit initially. However, you run the risk of incurring a loss when prices suddenly drop due to loss of desirability or new competitors in the market.

High-low pricing is ideal for businesses offering a new service to clients that can be potentially copied by competitors in the future. For example, a food delivery service operating in a new area with no competition can set a higher price for its services. As new players enter the market, the business can lower its prices to match the competition.

9. Hourly pricing

An hourly pricing strategy involves charging for your services by the hour. Naturally, this means that you need to set a standard price per hour for your services. Hourly pricing is especially popular with freelancers, such as freelance software developers who work with many different clients at a time.

The obvious advantage of hourly pricing is that your earnings increase with the number of hours you put into your work.

However, this also means that there’s no guarantee of how much money you’ll be able to make in a month or year, which makes it particularly difficult when creating a business budget or forecasting future sales or revenue. 

Additionally, if you price your services too high when you’re just starting out, even if you have years of relative experience, it may take you a while to land your first clients. On the other hand, if you set your hourly rate too low, you risk diminishing your perceived value which can make it difficult to attract your ideal clients. 

Hourly pricing is ideal for freelancers and consultants who work with clients on various types of projects. Because the scope of work often varies, it’s easier to price services by the hour as opposed to by the service type. 

For example, a freelance accountant who prepares financial statements, files taxes and provides bookkeeping services for several clients can charge by the hour rather than by the service. In this case, the value provided by the freelancer themselves is more important than the individual services they provide, thus placing a higher value on their time rather than their deliverables. 

10. Project-based pricing

In this pricing strategy, businesses charge clients a fixed price based on individual projects. This is also known as flat-rate pricing, and is best suited for projects that have well-defined project requirements, specifications and scope.

The benefit of project-based pricing is that it helps you build trust and set clear expectations with your clients by stating your final price upfront. The downside is that in case you face any complexities or difficulties in delivering a project, you won’t be able to charge a higher price simply because you put in more time or effort.

Project-based pricing is ideal for freelancers and agencies dealing with large or complex projects that have clearly defined milestones and expectations. 

For example, a freelance copy editor can choose one price for editing blog pieces and another price for editing email campaigns. Because the scope of work, end goals and audience varies for each of these deliverables, project-based pricing reflects the key differences in expectations and accounts for varied effort, time and methodology. 

11. Value-based pricing

Value-based pricing involves setting your prices based on the perceived value of your services in the minds of customers. To use this pricing strategy, you need to identify how valuable your service is to customers and how much they’re willing to pay for it.

Since value-based pricing focuses mostly on perceptions, it’s common to end up with a very high or low price, with little to no regard to the actual costs involved in delivering the service.

The advantage of value-based pricing is that your customers will be more likely to stay loyal if they value your services, which translates into repeat purchases and positive word-of-mouth for your business. Plus, you’ll be able to charge a significantly higher price if you offer high perceived value.

A potential drawback of the strategy is that only a small portion of the market would be willing to pay your asking price, which isn’t suitable for all businesses.

Value-based pricing is ideal for businesses targeting a small market segment and aiming to achieve high customer loyalty. For example, a photography agency can charge a high price if its target market is limited to extravagant events. This works because their target audience has the means to happily commit to a higher price and is willing to pay whatever it takes to get high-quality pictures.

12. Bundle pricing

Bundle pricing, or package pricing, is when a business combines several services and sells them packaged at a single price. Services added to a bundle usually complement each other to attract certain types of customers.

The price of bundled services is usually lower than if customers were to purchase each service individually. 

The advantage of the bundle pricing strategy is that you can promote and sell services that aren’t performing as well on their own. On the flipside, bundle pricing can negatively impact your high-performing services that could have been sold for a higher price on their own.

Bundle pricing is ideal for businesses looking to promote new services or boost sales of low-performing services. For example, a business coach may bundle face-to-face coaching services with materials for sale, such as a course or a suite of templates. While the course or templates may not sell well as standalone items, they are helpful assets to boost the value of a bundled package.

13. Psychological pricing

This pricing strategy involves tweaking your pricing based on the psychological impact it can have on your customers. The idea is to create a greater value perception in the minds of customers by taking advantage of how they perceive certain prices.

For example, providing just-below prices like £19.99 instead of £20 can leave the impression of a lower price as customers will simply round off the price to the lowest whole number.

The benefit of using psychological pricing is that it can help you sell more without needing to actually lower your price at all. However, it can be challenging to use this strategy for longer periods of time, as it can hurt your brand reputation by making customers feel tricked or scammed.

Psychological pricing is ideal for businesses targeting a price-conscious market segment. For example, a web-hosting service can charge clients £9.99 per month instead of £10.00 so that customers perceive it as lower-cost.

14. Geographic pricing

Geographic pricing is ideal for international businesses that offer services in multiple countries or regions.

As a multinational business, you can set your prices based on various factors unique to each location, such as:

  • Average income
  • Cost of living
  • Taxes and legislations
  • Economic conditions

This pricing strategy lets you tap into different markets and appeal to a global customer base. Geographic pricing is ideal for businesses that offer services in multiple countries or geographic regions.

For example, an international hotel chain can provide the same standard of service in France and India, but their rates will differ based on the purchasing power of the locals, the competition and the economic conditions of each country,

Consistently monitor and evaluate your prices

Just like your business budget, you should consistently monitor your prices and adjust them as needed if there are significant changes in the industry, customer demands, economic conditions, competitor prices and other factors.

This will help ensure your prices are helping you hit your goals as well as allowing you a big enough profit margin to justify your expenses, time and effort.

A good idea is to test the price elasticity of your services and monitor how it affects client conversion rates. This will help you understand how price changes can impact your sales and profit margins, and prepare you to make better decisions in the future.

Wrapping up

Choosing the right price and pricing strategy for your services can help you build a sustainable and scalable business in the long run.

It may take some time, but just like any other skill, you will eventually learn how to best price your services and start feeling confident about the value that you’re providing.

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Photo by fauxels, published on Pexels

Valentine Hutchings

Head of Community and small business enthusiast

Tide Team

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