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Everything About Pricing Your Online Service Business

How to price your online services?

Why do we launch a business? The answer is absolutely to make money. Our intention toward starting a new business can tell how much pricing (let's say a good pricing strategy) matters for a business, as it can impact all the aspects of a business. It matters because your pricing is a deciding factor in everything from your cash flow to your profit margins to which expenses you can afford to cover.


If you intend to value your services and expertise, you need to do your pricing best as you can. Your business fully depends on how you price its services, as it can be rather profitable or not-profitable.

Here's all you need to know about pricing your online services:


Why having the right pricing strategies matter?

The importance of pricing usually gets people stuck in the middle when they launch a new business or store. But how can you get proper data? By launching the business, then testing it with real customers to find its weaknesses and find the solutions to fix financial issues you will experience down the road.

Well, to make it come true, you need to know the pricing strategies which your business's life depends on.

The four marketing segments are known as 4P include Product, Price, Place, and Promotion. Price is the part that makes money, and that is why it is interesting to put more time to do it well.

The importance of pricing becomes clear when customers look at the price of two similar services first. We know that It all starts at first sight, and if your service is not selected, you may not be able to show your superiority to the same service from other providers.

The moment you make a mistake in pricing is when you either destroy your profit or the credibility of your business.

So the reason why we price our online services include:

  • Maximum Current Profit (the short-term profit)Survival
  • Maximum Current Share (more of a market share)
  • Skimming
  • Service-Quality Leadership
  • To help society


The key concepts in Pricing goods and services

When you try to price your services, there are three important concepts to know:

  • Price: The cost that the customer pays to use our goods and services.
  • Cost: Fixed and variable costs incurred to introduce a service or provide a service.
  • Value: The value of service means that the customer knows that he has received more benefits than the money he paid for. Value for the customer is not just the goods he buys. It depends on many variables: for example, the brand image in the mind of the customer, after-sales service, business's reputation, and so on.


What are the pricing models and strategies?

After recognizing the values ​​that your service creates for the customer and considering the market conditions and your position about competitors, you can use any of the following pricing models and determine the final price.

  • Penetration pricing / loss-leader pricing

In this method, they set their service price lower than usual (with the lowest profit) to attract customers' attention to themselves. Once they penetrate the market and reach their goal, they raise prices.

  • Economy pricing

To produce and sell a service to the customers, they use low-cost methods to be able to offer a cheap service. In this way, they can add a low-income segment of the community to their customers and expand their market.

  • Freemium pricing

At first, the service will be provided for the customers for free, but then they have to pay to activate additional features and characteristics. This pricing strategy is widely used in the digital world. You must have experienced this in many games and software! You download it for free, but you can only go one step further and pay for the rest. The good thing about this is that the audience gets to know the service first. Uses it and pays for additional features if the service suffers.

  • Price skimming

This method is the opposite of penetration strategy; that is, when a company introduces a new service that has special technology to the market, it chooses a very high price for its service. After competitors enter the market due to high prices, it gradually reduces the cost in order to increase its market share. Customers are willing to pay more to experience this new service, but that is not the case after a while, so the company lowers the price to attract more customers. The high initial price creates an image of a leading service of what you provide them within the audience's mind.

  • Captive Pricing

In this way, the main service price is kept low, but in order to use it, you have to provide other services that do not have a low price.

You have seen this method a lot. For example, communication service companies sell their SIM cards at very low prices and even include free internet packages, but you have to buy different services to use them again.

  • Dynamic pricing / Time-based pricing

In the dynamic pricing method, companies constantly change prices according to the demand and needs of individuals in order to increase their profits.

For example, travelers know that the price of plane tickets can vary greatly depending on the demand for the day. On busy days the price is higher, and on days when demand is low, the price for the same flight is very low.


  • Cost-Based Pricing

In this strategy, we add up the service costs and determine the amount of profit we want; as a result, the final price equals an amount we call it Cost-plus, which is actually the profit you expect.

The only advantages of this method are that a business can be assured of always generating a profit, as long as the markup figure is sufficient and unit sales meet expectations, and that it is a simple way to develop prices. However, this approach routinely results in prices that diverge from the market rate, so that either the firm is selling at too high a price and is attracting too few customers, or it is selling at too low a price and so is losing profits that customers would otherwise have been happy to pay.

  • The first thing is Costs-plus pricing which is the simplest pricing method. It is also called mark-up pricing and means nothing else than adding a standard markup to the service's cost. Of course, the standard markup should account for the profit.


  • Bundling pricing

Research showed that many services offering in the online service providers' market could be sold by just bundling. Sometimes beautiful packaging makes customers more interested in receiving more services from your online business. Sometimes some creative packaging becomes a trend that is a kind of incentive to pay for your services.

For example, if customers have submitted a request to send their SIM card package online, you can have it delivered to their door in a beautiful package which can be a good advertisement for your business.

The more interesting the services you provide, the more valuable your customers will feel.


  • Geographical pricing

The service is offered in different regions of the world at different prices. This price difference is normal because, in some places, the service is less expensive or involves a higher shipping cost.

About online services, it may apply less cause the process is done through the Internet.


  • Premium pricing

In this pricing method, the service is marketed and received at a higher price than competitors. This method works when:


-         The number of competitors should be small

-         The company knows that its online services have a special competitive advantage over other services and customers are willing to pay more for it.


  • Perceived-Value Pricing (based on the value of the goods and services in the customer's mind)

The price is determined based on all the value created for the customer. Businesses actually sell you more than one service. Good manners, after-sales services, or even a sense of brand trust is what they sell you besides the main service they receive; these are all the values ​​that the audiences pay for.

To make it clear, think of a time when you bought a good or paid for an online service just because you had trust in the business and its values. They intelligently did the pricing based on building trust and looking good enough in customers' minds to have them back for shopping again.

For example, some people say that Apple cellphones are too expensive Later, the company's marketer mentioned that the reason for such pricing is that when the feeling customers get from having an Apple phone is one of the values ​​that Apple has created for them!


  • Market-based pricing

According to the available definitions, a Market-based pricing strategy involves a process in which the service prices are fixed after studying the costs of the similar services available in the market. Depending upon what an online service provider has to offer, more or less than the competitive service providing, businesses decide their services' prices.

And this is the best strategy you can choose for your business.

Sometimes pricing is based on the fact that our customers can afford to pay for a service in the current economic situation.


How to create a profitable market-based pricing strategy for a profitable business

There are few steps you need to take to design one for your online business:

  • Make it clear your business goal (Larger market share, Increase in profitability, Increase prospect presence, Increase revenue per customer, Reach a new segment, etc.)
  • Learn more about pricing strategies
  • Create a pricing plan
  • Who are your competitors? know the direct competitors and indirect ones
  • Also, here are some tips that might be relevant to you:


1. Sometimes high prices are winners

The reality of online retail pricing is that the lowest price doesn't always get the sale. You will lose the battle if you price your service at a very low amount, and it doesn't really matter how many customers you have at the moment.

Besides, lowering your prices to a point where you are losing money doesn't seem reasonable.

Remember not to get your online business to the pricing battlefield because in long term it's you that is hurt.


2. Find your most popular services (the ones that are wanted more than others)

What makes the service you provide unique? You should determine your value point, which can define the amount you get as a profit.

When you know what services your customers need more, you know what to offer whenever you feel your profit is lower than what you expect.


3. What encourages your customers?

Once you know your margins and your pricing is done properly, then you are ready to offer encouraging services to motivate your customers to use more of your services.

Even if you can't keep an ultra-low price in the long term (and it's predictable), you can always offer limited-time pricing to reach these customers; for example you can ask them to use a service today and receive 20% off. This also gives a sense of urgency to the purchase, which means that tomorrow will be too late.


4. Add variety to your services

Always be sure to be updated to the current trends and know your market. If you want to know about the newest trends use some tools like, Google Insight or Google Trends and read more about commerce.

When there is no good option available for your customers to choose, they will obviously find another option to meet their needs.

Online businesses usually offer less attractive options to emphasize the good which drives customers to opt for the more expensive options available.


5Manufacturer Suggested Retail Price (MSRP)

If you have some services to sell, you would probably connect to online markets like Digikala, and is this way you are able to sell your services there with the price the market suggests you to put on your services.

With this, you are free from being in trouble for making decisions about pricing your online services. As a result, you can take an advantage over your competitors if you're stuck with the MSRP strategy.


6. Discount Pricing

If you are the owner of an online store or an online business, you should know that using discount technique on services is a great technique to increase online sales and increase customer loyalty, but be aware that unintentional and accidental use of this technique can do serious damage to your business.


Advantages and benefits of offering discounts 


Advantages:
  • It is easy to follow and check how effective it is.
  • Increases customer loyalty.
  • Increases conversion rates from in-store purchases.
  • Increases online sales rapidly.


Disadvantages
  • It lowers the profit margin of services because you sell the service at a discount.
  • There is a possibility of damage to your brand, because the discount also creates a negative aspect in the mind of the buyer.
  • There is a possibility that customers will get used to it, you may gradually get customers used to buying only if there is a discount. Like many customers who use online food sales sites only at a discount.
  • It is possible that the customers using your services at a discount, will not become loyal customers and will buy from you only because of the good price.
  • The average purchase price goes down because you have a discount on your customers' shopping cart.


7Psychological Pricing

It is a fact that when we pay for a service or buy a good, we become happy of getting the thing we wanted but there is another feeling which is a hidden pain caused by the cost we pay for everything we buy.

If you as a supplier, seller, business owner, or a service provider help your customers experience less pain when paying for your service, it's possible to increase the likelihood of your customer pay for your service – and returning in the future. 

By taking this approach, you trigger impulse purchasing through the perception of a bargain deal in your customers.

 

Conclusion

The price is very tempting and everyone wants to make a big profit from their services by setting a higher price; But be aware that consumers usually analyze prices in their minds; Compare with previous prices and other goods.

Consumers usually have a floor and a price ceiling for each service they ask you. If the service has created a lot of value for them and they feel good about it, they will pay for it up to the price limitation they have in mind.

So our advice is that, whatever price you consider for your service, be reasonable about it and research before it.

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