Six Common Price Model Mistakes Service-Based Business Owners Make

Your company’s price model can significantly affect profitability. Unfortunately, many business owners are prone to making price model mistakes, putting them at a serious disadvantage.

Creating a price model for a business is more challenging than it seems. And, more often than not, business owners simply copy their competitor’s prices or even undercut them.

But the fact is that many factors can influence how we set our pricing models, often from having no experience to a lack of confidence.

By recognizing the common price model mistakes and acting on them, you will start charging the prices that are right for your business. Not only that, but you can also have the edge over other businesses in the same industry.

This article outlines the top six mistakes business owners make when they make their price models. Keep reading so you will be able to recognize those mistakes and eliminate them.

The 6 Mistakes

Most business owners don’t realize this but creating a well-designed pricing strategy could benefit their company and make it more profitable. However, making the perfect price model is not as easy as it seems.

You might think it’s enough to check out your competitors’ prices and base your price model on them, but there’s a lot more to it. Similarly, it’s not just about charging too little or too much for your services. There are various other factors you need to take into consideration.

With that in mind, discover some of the most common mistakes business owners make when making their price models:

Mistake #1. Viewing Your Time as an Inherently Valuable Piece

One of the fundamental mistakes business owners make with their price models is looking at their own time as an inherently valuable piece of their service provision. This not only applies to their time but their deliverables as well, whether they take the shape of physical reports or websites and digital information.

In any case, you shouldn’t be charging for your services solely based on your time and the deliverables you provide. Otherwise, it’ll put an immediate cap on your revenue.

Mistake #2. Not Seeing a Way to Translate Your Advice Into Longer-Term Client Gains

Often, even if your advice and knowledge can solve your client’s immediate problem, it won’t do much for their long-term gains.

When trying to solve your client’s problem or help them in some way, the goal is to have long-term effects.

You want your client to be able to reap the benefits of your service for an extended period, not just right at this moment. The trick is to find a way to convey your advice and knowledge to your client so they can use it time and time again, not just that one time.

If you’ve done a good job, the value of the service you have initially provided will continue throughout time, even if you don’t work with that client anymore.

Mistake #3. Lack of Courage

Another mistake that business owners or service providers make is having a lack of courage or conviction when it comes to the value you provide.

In many cases, the business owner’s prices reflect their self-esteem, not the customer’s perceived value. But in situations like these, it’s important to remember that it’s not about you, but about your clients.

Truth is, growing a business and changing pricing models can be unnerving, especially in today’s fluctuating market.

That’s why you need to be able to remove yourself and your self-esteem from your pricing model. The more experience you have at this, the easier it will become.

Mistake #4. Charging the Same as the Competition

The truth is that there is no way of knowing whether the other business is successful and profitable. That’s why you should never set a fixed value based on what your competitors are charging.

When you find out how much your competitors charge for the same type of service, you may be immediately tempted to undercut those fees. But what this actually does is put you at a disadvantage.

Now, the reason why undercutting isn’t a good idea is that your target audience might view your prices as a reflection of the quality of your service. After all, people tend to associate lower prices with lower quality.

For this reason, undercutting is not a good pricing strategy unless you know you can produce a set volume of deliverables each month.

Mistake #5. Breaking Yearly Desired Income Into Hours

Breaking your annual desired income into the number of hours that you believe you’ll be able to work is another common pricing model mistake. And it’s also a mistake if you calculate your hourly rate based on your yearly desired income, as this isn’t accurate at all.

Why is it a mistake?

As time goes by, our goal becomes working for a shorter amount of time for higher revenue.

The opposite will happen if we base our hourly rate on the maximum amount of time we think we can work. It’s why this pricing model is not going to stand the test of time.

Mistake #6. Charging Low Fees That End Up Feeding Resentment Toward the Client

Undercharging isn’t a pleasant feeling for service providers. But sometimes, they have no choice.

Know that charging low fees for your services can sometimes result in you feeling resentful towards your clients. And this is a mistake that every business owner in the service industry has to learn at one point.

Just like you must learn not to associate your price model with your self-esteem, you need to learn to be professional enough to not resent the client for asking for your lowest cost service.

Make the Most Profitable Price Model for Your Business

As you can see, there’s a lot to think about when setting a price model for your business. To start with, it should reflect your company’s needs as well as the current market. And the worst thing you can do is copy what others are doing or even try to undercut their prices.

Your business pricing model needs to be based on the value of your service, not on factors that are irrelevant to the service and the customer.

We might not give much thought to our hourly rate, but it’s actually a reflection of who we are as business owners. If we set our prices too high or too low, it might have a negative impact on our business.