Popular Pitfall When Pricing Services

featured, Manage — By Poornima Vijayashanker on January 20, 2012 at 3:40 pm

Despite the size of people’s bank accounts, everyone is sensitive to price because we all want a fair exchange of values. The price point of a service such as a yoga or personal training session, or a dance class is the first indicator of value. As a business owner who has members you’re probably wondering how you can price your service and still reach a reasonable profit margin without having people be sticker shocked.

When creating a pricing structure owners often make one of these three mistakes:

Fallacy of Free

Offering something for free is one way to attract new members to your business. You can create a complimentary card for your members to hand out to friends and family, give a new member a free session just to try out the service, or extend an expired membership for a loyal member. But continually offering freebies can be detrimental to the bottom line of your business. People have little incentive to pay for a service that they are getting for free. They are also not as invested into the service. For example, if you give away 2 sessions for free, why would someone return and pay for a third? If you instead charged them upfront and told them they get 3 sessions, they know they’re paying for 3 sessions, and will be more likely to come to each. Paying for each session is an investment to them, and hopefully after the third session they are hooked.

Also it costs you money to render the service, so you need to keep track of the number of freebies you’re giving out weekly and monthly to make sure it doesn’t cut deeply into your margins.

Undercutting or Copying a Competitors Pricing

We all face competition. The easiest way to lure a member away from a competitor is through price. If you undercut on price too much you attract the wrong type of member, and its becomes easy for another competitor to come along and undercut you! You really need to be competing on the quality of your service.

Not Offering Premium Services

You don’t have to be a celebrity trainer to offer a premium service. Too often owners forget that they can have fewer members, and charge them more. This might be a good option for those of you who are more interested in having a business where you focus on teaching. You can have a small group of loyal members who pay premium, in return you offer them high quality and customized service that addresses their needs.

The next time you look at your monthly revenue and its not quite adding up to what you want or need, see if you’ve become victim to one of these pricing pitfalls.

Poornima is a software engineer and entrepreneur. She was one of the first engineers at Mint.com, a startup, which was acquired by Intuit. She graduated from Duke University with double major in Electrical and Computer Engineering and Computer Science. Poornima has been a devoted yogini for the past 6 years and competes in Bikram Yoga. Through consulting with local studios looking to improve their management practices, she decided to create BizeeBee. Learn more about BizeeBee