Pricing of a Service

Rahul Lala
MMM (2008-11)
Roll: 55
Services Pricing - Features

The price should:

• Be easy for customers to understand
• Represent value to the customer
• Encourage customer retention and facilitate the
customer’s relationship with the providing firm
• Reinforce customer trust
• Reduce customer uncertainty
Service functions

= +
Time Effort
Basic Pricing Structures

PROBLEMS:
PROBLEMS:

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1. Costs difficult to trace

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1. Small firms may charge too

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2. Labor more difficult to

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little to be viable price than materials

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2. Heterogeneity of services

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3. Costs may not equal value
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3. Prices may not
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PROBLEMS:
1. Monetary price must be adjusted to reflect
the value of non-monetary costs
2. Information on service costs less available to
customers, hence price may not be a central factor
Pricing Strategy based on Customer’s Value
perception

“Value is Low Price” “Value is Everything

I Want in a Service”
 Discounting C  Prestige Pricing
 Odd Pricing U  Skimming Pricing
 Synchro-pricing S
 Penetration Pricing T
O
M
E
“Value is the Quality R “Value is All that I Get
I Get for the Price I Pay” for All that I Give”
 Value Pricing  Price Framing
 Market Segmentation  Price Bundling
Pricing  Complementary
Pricing
 Results-based Pricing
Pricing a Service - Steps

Step 1: Figure billable hours for which the service will be rendered
• To calculate billable hours subtract:
▫ Time offs
Weekends, holidays, vacations and sick days

▫ Marketing efforts
To sell the service to prospects (new business owners may spend about half their time in
marketing the first year; many existing businesses spend about a day per week)

▫ Training efforts
To improve services and stay up with current trends (can take a day per month)

▫ Administration
Invoicing, paying bills, dealing with suppliers, finding equipment, etc.
Pricing a Service - Steps

Step 2: Figure billing rate costs

Components to be included:
• Salary: Should be comparable to wages the person would be making working in
the same type of job for someone else (given the same skills and experience)

• Overhead costs: Advertising (Yellow Pages, newspapers, and trade journals),

Business and professional meetings, (lunches, room rentals, and taxis; any
direct cost should be billed to the client), Transport expense, Depreciation on
equipment, Dues, publications, professional fees, Education and training,
Insurance (fire, liability, malpractice), Interest (if you borrow), Professional
fees (accounting, legal, financial), Printing (brochures, stationery), Rent
(allocate even if you use your home), Repairs and maintenance, Secretarial
services, Supplies and postage, Taxes (real estate and personal property),
Telephone, Travel expenses, Utilities, etc.
Pricing a Service - Steps

Step 3: Figure out minimum hourly rates for the service.

Minimum Hourly Rate = Costs + 10% (for profit margin)

Billable Hours
Thank You…