How to determine prices in your service company?

Prices

Professional services are those which are intangible, and their main and distinguishing value relies on the knowledge of the service provider.

This is the case of advertising agencies, lawyers, consultants, software companies, designers and producers, among others.

Hence, the amount of time dedicated to the task as well as the value of said time are essential elements. Here we’ll state the things you must take into account when determining prices accurately.

The first thing you must bear in mind is that the price at which a service is sold is, mainly, the result of the provider’s cost per hour per the number of hours she/he has dedicated to the task.

The cost per hour is the price at which one decides to sell her/his hour or the hour of her/his employee.

For example, if the project to be carried out is developing a website, you should count the number of hours invested by the team (designer, programmer, etc.) and multiply it by the cost per hour of each member of the team.

In order to determine your own cost per hour, or your employees’ cost per hour, we suggest you analyze the market.
The cost generally arises from the kind of task to be performed and the required level of experience (seniority).

It is important to identify the cost per hour of the person performing the task, as well as to prorate general expenses related to said person (rent, services, benefits) and the profitability margin you wish to apply over it.

You should also bear in mind that, little by little, you will be gaining experience and improving the service you offer.

The quality of your work will become more valuable and this must be reflected in the prices you offer to your clients.

You should also closely follow your country’s economy. As time goes by, inflation can increase and, if not compensated in time, your purchasing power will diminish and this will endanger the future of your company.

Finally, the best advice we can give is that you implement Project Management tools which help you determine your projects’ profitability: a tool which is capable of calculating if the project is profitable or not based on the cost of hour of your workers and the invested time.

In this way, you will be able to strategically choose the projects which will yield more results and which will make your company grow.

Besides, you will easily control the progress of each project and you will be able to see which adjustments are needed, constantly optimizing your team’s performance.

 

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