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Service Pricing Strategies: 13 Ideas and How to Choose One

March 24, 2023 8 min. read
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There’s more to pricing strategies than simply offering the lowest price to beat your competitors. In fact, that may be one of the most dangerous pricing strategies for service businesses, as it almost guarantees lost profits.

The right pricing strategy has to align with your business goals, whether these are to maximize profitability, ensure your business’ longevity, or grow your customer base.

Keep reading to learn more about pricing strategies for services, why they’re important, and how to choose the right pricing strategy for your business.

For even more expert advice, watch this episode of Ask a Business Mentor to hear how four experienced business owners choose the right pricing:

What is a pricing strategy?

A pricing strategy is a  method that a business uses to price its products and services. It’s a way to set prices that accounts for factors like market condition, variable costs, margins, and a customer’s ability and willingness to pay for your services.

Why are service pricing strategies important?

Pricing strategies are crucial because they:

  1. Determine your sales and profits. For example, you might not profit much if you price by the hour without factoring in parts or material costs for the job. 
  2. Pricing strategies shape your prospects’ view of service quality. For example, low pricing may lead customers to believe that your service quality is poor.
  3. Your pricing strategy can help you achieve your business’ objectives. The most common objective is maximizing profit, but you may have others such as growing market share quickly, edging out the competition, or building lasting relationships with customers so they’ll continue working with you for years to come. 

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13 Pricing strategies for service businesses

There are many different pricing strategies to choose from, each with its own advantages. In the list below, we’ll cover 13 different pricing models and pricing strategy examples for each:

1. Competitive pricing strategy

Competition-based pricing involves researching what similar businesses in your area charge and setting your pricing accordingly. 

For example, a cleaning business owner researches competitors in their area to learn that most other cleaning companies charge between $80 to $100 per visit. To stay competitive, the cleaning service sets their standard cleaning rate at $90 per visit.

While competitor pricing can give you a good idea of where to start, remember that your business is unique. Just because someone is charging a specific price doesn’t mean you should match or undercut them.

2. Bundle pricing

Also known as packaged pricing, this strategy involves bundling various services together and charging one price. Bundled services are usually cheaper than the total price of all services combined. 

For example, a home maintenance company offers a bundle of electrical, plumbing, and HVAC inspection services for a lower combined price than if each service was purchased separately.
If done correctly, this technique is a great way to upsell more services and boost your profits.

3. Good, better, best pricing

Also known as tiered pricing or price bracketing, good, better, best pricing offers clients the option of choosing between different levels of service or packages.

For example, a lawn care provider can offer a basic package (bronze) for $110, a standard package (silver) for $220, or a deluxe package (gold) for $300. 

image of optional packages in Jobber
Image of optional packages on a quote made in Jobber

Each package offers incrementally more value, and the difference in price gives the customer a chance to consider what they are willing to spend.

4. Value-based pricing

Charge a flat fee based on the value (benefits) your service provides. Your value could be saving your customer time or giving them peace of mind.

Before quoting a client, make sure you’re clear on the benefits your service provides and, in turn, what they’re actually paying for.

For example, a specialized eco-friendly cleaning service charges higher prices due to their use of environmentally safe products. 

Value pricing lets you charge a higher price and protects you from the all-too-common price haggling that occurs with some customers.

5. Hourly-based pricing

Invoice your clients for the number of hours it takes to complete the service. Hourly pricing is one of the easiest ways to price your services. Simply estimate how long a job will take and multiply it by your hourly rate. 

For example, a plumbing service charges $60 per hour. If a job takes three hours to complete, the customer will pay $180.

Although this pricing strategy is easy when you’re just starting a business, use it with caution. It has some downfalls:

  • You aren’t rewarded for becoming better and faster at what you do
  • Clients may feel you’re purposefully taking your time on a job so you can earn more
  • The focus is on the cost of the service rather than the value, which opens you up to price haggling

Set hourly prices with our free labor cost calculator. Try it for free now.

6. Market penetration pricing

Setting prices low is one way to attract customers when you’re just starting. Then increase your rates over time as your client base grows.

For example, a new landscaping service may choose to offer a 25% discount for the first six months to attract new clients.

The big problem with a penetration pricing strategy is that some customers may associate the lower price with an inferior level of service. You will also have to work a lot harder to cover your costs.

7. Skimming pricing

Price skimming is the opposite of a market penetration strategy. Here you set a high price and lower it over time. This isn’t a typical pricing strategy for service businesses, but it may work if you have something special to offer. 

For example, a high-tech home security installation company starts with a high price because its services are unique, then lowers it over time as competition increases.

The pros are that you’ll maximize your profits upfront and grow a more sustainable business. The big drawback, however, is that if you can’t justify the price, you’ll struggle to get your business off the ground.

8. Premium pricing

Charge higher prices when you offer a service or level of service that’s unparalleled by your competitors. 

For example, do you offer a warranty or service guarantee that your competitors do not? Do you use exclusive tools or technology that make your business easier to work with and deliver results that stand out?

READ MORE:What to do when customers say your price is too high

9. Promotional pricing

Offer services at a lower price for a limited period of time to attract customers and increase sales. This strategy is often used to introduce new services, boost sales during slow periods, or compete with other businesses.

For example, a snow removal company offers a 20% discount on snow plowing or removal for any customers who sign up in September or October.

10. Dynamic pricing

Adjust your prices based on seasonal demand, time, or other factors. 

For example, an HVAC business may charge higher rates for emergency repairs during peak summer months due to increased demand for their services.

11. Economy pricing

Offer services at a low price point because overhead costs are low and you’re looking to attract high volume sales. This pricing model is typically used to attract the most price-sensitive customers.

For example, a house cleaning service offers a no-frills, basic cleaning package that just includes the essential tasks like vacuuming and dusting for $50.

12. Cost plus pricing

Calculate what it costs your business to deliver your services, then add markup to make a profit. 

For example, if you know your time and materials cost $200, and you want to make a 20% profit margin, simply charge $250. 

Find out how much to charge to reach your profit goals. Calculate your profit margins now.

13. Project-based pricing

Charge a flat fee for a complete project—that includes the cost of materials, overhead, and labor.

For example, a remodeling company charges a set price for a kitchen renovation project based on the project scope and materials.

How to choose the right pricing strategy

The best pricing strategy for your business is the one that aligns with your business goals. Which is why picking an effective pricing strategy will depend on your business’ financial situation, industry, and objectives. 

Here’s what you’ll want to consider:

  • Your overhead costs. If your overhead costs are low, you can charge more competitive prices. On the other hand, if your costs are high, then competing on prices isn’t a profitable option. You’re better off charging a premium based on the value you’re providing customers or the unique services you offer. 
  • Your goals. If you’re a new business looking to get customers fast, opt for a market penetration strategy, promotional, or hourly-based pricing to get your business off the ground.
  • The type of services you offer. Consider what pricing strategy makes the most sense for your business’s service list. For example:
    • Handyman pricing is usually based on the number of hours it takes to complete a service
    • Cleaners may offer tiered pricing for different cleaning service levels, like house cleaning, deep cleaning, or sanitizing.
    • Lawn care businesses may offer bundled pricing that includes related services like weekly mowing and edging. 
  • Your market demand and competition. Consider how other service businesses in your area set prices before pricing your own. Some customers may be more responsive to the lowest possible price, while others prefer to choose a level of service based on their budget.
  • How established you are. If you’ve been operating for a few years and want to grow faster, offering packages can help you secure more business from reliable customers.

Remember, when it comes to choosing a pricing strategy for your home service business, you don’t have to pick just one. Using different ways to price your services at the same time helps you appeal to more customers and make more money.

Just make sure to stay flexible, and it’ll only be a matter of time before you find a pricing strategy that’s right for your business.

Originally published in September 2019. Last updated on November 28th, 2023.

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