Messy Pricing: How to rein it down

Pricing in a field service business is very important because your pricing reflects the value of the service that you provide. The major (and possibly only) pricing strategy that most business owners know is offering the lowest price to beat their competitors. But there is so much more to pricing strategies than that.

The right pricing strategy for your field service business must align with your business goals. These could be to maximize profit, guarantee your business’ longevity, or expand your customer base. You must also take the nuances of your job and your business in particular into consideration.

In most cases, you will have a great deal of flexibility when it comes to pricing your services. There is no clear-cut formula to pricing in a business, but there are some underlying principles to help guide you through figuring out what the best prices are to charge for the service that you offer. We will be outlining these guiding principles and factors to consider in this post.

Costs

When pricing a service, you must first and foremost work out the costs involved with providing that service. These costs include:

- Material costs: These are the costs of goods used in providing the service. For example, a cleaning service would need to factor in the costs of cleaning solutions, tools, rubber gloves, paper towels, etc. A construction service would tally up the costs of cement, steel, sand, blocks, bricks, etc. (You can choose to include your material list with your estimate when bidding for a project).

- Labor costs: These are hourly wages of the field worker(s) or team that provides the service. It is recommended that you make use of an effective time tracking solution to keep tabs on the exact number of hours of labor involved in providing your services to each client. This will help prevent any mistakes in wage remittances.

- Overhead costs: These are indirect costs to your field service business in providing services to customers. For example, a construction company would often have overhead costs such as transportation costs, insurance coverage for both people and equipment, etc. These costs are also important to consider when setting your prices.

With a time tracking solution like Atto, you can generate accurate data on hours worked on a project, how many workers it took to complete it, as well as add notes about certain specifics that are relevant to the project. With this data, you’ll have an overview of your labor costs and be able to create forecasts that can help you price your services accurately and fairly. 

Your Clientele

Your clients will be driven by either of two things: your prices, or the value of the services you provide. Comprehensive market research will enable you to accurately determine what drives your customers’ to one business or the other.

If they are driven by price, then you may find more success with smaller clients by charging lower. On the other end, bigger clients have the money to pay you more, so don’t be scared to go higher with what you charge them. But do keep in mind that if you charge a big client too low, this might devalue your service for them. The key is to set a fair price that won’t negatively impact your business.

Pricing Models

You could charge an hourly rate, a fixed rate or a flat fee, or a variable fee. For instance, many construction companies charge a fixed project fee and require that one third be paid upfront, another third be paid at the halfway point, and the remaining third be paid upon completion of the project.

Many businesses prefer to charge hourly rates because they can get full returns on actual time and labor invested into the service. However, it is mostly employed by consulting services, so field services may not get the best out of charging hourly rates. However, if you do charge hourly rates, you’d want to be precise with the hours that you list in your bills. Here is another case where time tracking software is extremely beneficial in coming up with accurate hourly rates and the right prices to charge your clients.

For fixed or flat rates, the one bearing the risk would be you the service provider. If the costs that you incur in providing your service to a particular customer were to be higher than anticipated, or the project was to take longer than expected to complete, you may risk losing money on that client. A preventive measure for this kind of loss would be to place a cap on the number of hours involved in the project and set additional fees if the project were to run over that time cap.

Lastly, for variable rates, you will have to engage in bargaining and negotiation for price agreements to be reached with customers. It gives you that added flexibility to charge different customers different rates as you deem appropriate for each project. The only exception that you might have to make is considering offering price discounts where a client brings a very large project to you. Also, charging different rates to different customers may create some ill will for your business, so you need to consider this against your existing clientele.

Competitors

It is not always healthy to be snooping through what your competition is doing, but for pricing, it is permissible. Finding out what your competition is charging for their services, what level of service are they providing for the prices they charge, what kind of clientele they service, and how they are positioned in the market can help give you an idea of how you should be pricing in your own field service business.

Profit

As a business owner, this is one of the most important factors you need to be considering. How much do you need to be charging to, first of all, break-even, and then make a profit? After buying all the materials and equipment for your construction company, and then employing skilled labor to work on the projects, how much will you need to charge to make a profit on all these investments?

Now let’s take a look at some of the most common pricing strategies in the field service industry. When choosing which strategy you want to implement in your business, consider each one against the backdrop of the factors listed previously.

A. Market penetration strategy: Setting your rates low to grow market share. Then increase your rates over time as your customer base grows.

B. Price skimming: Setting your rates high and then lowering them over time. This, however, is not a typical pricing strategy for field service businesses.

C. Premium pricing: Charging higher based on the fact that you offer more value than your competitors.

D. Economy pricing: Charging low prices because your business costs are low.

E. Cost-plus pricing: Calculating your prices against what it costs to deliver your services and then you add a margin for profit.

F. Bundled pricing or packaged pricing: Bundling various services together and charging one price for all of them.

In conclusion, your pricing should reflect what your time and resource investments are worth. Therefore, carefully consider each of the factors listed above before going ahead to set your prices.