I’m at the point in my business planning where I need to start thinking about setting the prices I charge for my services.  It’s been a struggle for me to decide how much I feel my services should be worth.  Reading books, blogs, and forums on the subject, the general consensus seems to be that there is a happy medium between undercutting the major competition without shooting so low that people wont take you seriously.

I’ll take you through the process I used in order to come up with my prices.  Although this process is specifically for my business as a computer consultant, I’ve tried to make the ideas broad enough that they can apply to almost any business in the service industry.

Pick Your Poison - Before I did anything, I needed to decide what services to provide.  I could have a blanket hourly fee for all services, or charge per service separately.  I ended up going with a mixture of both.

Ping Your Competition - The next thing I did was call up some of my local competitors to see how much they were charging for the same services.  The key is to also ask them what their response time is, if there is a trip fee involved, and WHEN the clock starts for hourly service (do they start charging when they arrive on site or when they begin work?).  These will all factor into the prices you set.

Don’t Undersell Yourself - My immediate reaction was to drastically reduce my prices to undercut the competition.  Since I’m starting my business part-time as a supplement to my full time job, I am not concerned with making enough money to pay my bills.  However, the danger of setting your price too low is that you risk looking like an amateur.  I don’t know about you, but I’d be a little suspicious of a mechanic that charged $20 to replace my transmission.

But Don’t Overshoot Either - Granted, I don’t want to look like I don’t know what I’m doing, but on the other hand, I don’t want to charge the SAME or MORE than the big boys who have been doing this a lot longer and have more resources than I have.  Sure, if I had a crack staff of hundreds of technicians that could be to your house in 10 minutes, I may be justified in charging $120 an hour to fix your computer. But right now it’s just little ol’ me, and the only way little ol’ me is gonna get any work is if I’m cheaper than the big boys and right on par with the rest of the competition.

Diversify - One good way to earn extra money while keeping your prices cheap is to offer extra “add-on” services for $5-$10 a pop that customers can tack on to their order.  I have some of these tricks up my sleeve and I’ll be letting you in on my strategies in later blog posts.

Also, you may want to offer cheap prices on your most popular services (malware removal, system tune-ups) to get people interested, and then offer regular prices for more specialized services (home networking, data recovery).

Don’t Forget Discounts - A sure way to attract customers is to offer regular discounts and specials.  I plan to do this right off the bat, by distributing “$10 off” coupons to people I know.  This way, you can offer regular prices that are right in line with your competitors, but set yourself apart by offering coupons that take your price lower without making it look like your services are not valuable.

These are some of the strategies I will be following in order to set reasonable prices while attempting to separate myself from the competition.  What have I missed? What would you add to the list?  If you have a business, how do your prices compare to your competitors?