I recently met with a contractor for an upgrade I wanted to make to my house. He offered to price one part of the job—which was small—at an hourly rate, while the others were priced at a flat rate.
Many buyers prefer having a flat or fixed fee when they choose a service. If I didn’t know the contractor beforehand, and I had a choice between hiring him at a flat fee or an hourly rate, I would choose a flat rate every time. If you’re a service provider and charging by the hour without a fixed-fee alternative, then it’s time to consider fixed-fee pricing.
You might be shocked at how much easier it is to sell flat-fee services than hourly services. Why? Because you’ve agreed on the price upfront, and there are no surprises or haggling when the bill comes around.
Let’s see how you can make flat-rate pricing work for you.
The first thing that crosses many entrepreneurs’ minds when they think about moving from hourly to flat-fee services is that they’ll make a mistake on pricing and lose money. It’s true that you need to develop a skill for pricing, but if you have a written history or working memory of how long similar jobs take, then you’re well on your way to becoming a good estimator.
If you don’t know where to begin, your accountant should be able to help you collect your direct costs, allow for some coverage of overhead expenses and include some profit on each job.
Perfect Pricing With Packages
The fun begins when you start moving your services from flat-rate pricing to package pricing. Many service companies offer packages. For example, when I started a non-profit, I hired an attorney to help me incorporate and achieve IRS- and state-recognized 501(c)(3) tax-exempt status. He charged me a flat package rate to do it all.
Web-design firms have similar site-building packages, and some accountants are beginning to offer bookkeeping and tax packages. Florists put together packages for special occasions and holidays. Physicians have packages, such as the annual checkup. And other businesses that offer training or physical activities, such as karate, yoga or spin classes, have packages based on the number of classes you want over a specific period of time. Travel companies offer packages that include services from multiple vendors, including airlines, hotels and transportation companies. Partnering with other companies can be an attractive way to expand your services and offer unique packages.
If you offer a service, consider how you can set up packages to appeal to your client base. If you have packages already, consider sprucing them up with a few of the tips listed below.
The Power of Three
If you only offer one package, consider offering at least three. The first should be a basic version of your services, the second should be the most popular option, and the third should include “The Works” for people who always have to have the best.
Take a lesson from spa companies, and give your packages cool names that will appeal to your client. Include the benefit or the mindset change that will occur.
For example, when Loretta Witt Simmons, CPA, renamed her company “Witt’s End Accounting,” her business soared because clients knew she had a sense of humor and would be fun to work with. A name can make all the difference.
Don’t Fret About Exceptions
You’ll never be able to have a package that suits everyone, so just design packages for the bulk of your sales. Clothing manufacturers get away with one-size-fits-all, and you can adapt that idea for your business.
There’s no need to throw all the bells and whistles into the core packages. You can have add-ons and upgrades. For example, homebuilders often employ upgrades when buyers choose a new home.
Just make sure that your core package is robust enough so that the add-ons are truly upgrades and not necessities. Otherwise, your client will feel like you’ve done a bait-and-switch maneuver.
When promoting or explaining your packages, put them in a chart with a column for each package and a row for each feature. Use checkmarks or explanations in each cell so that your clients can quickly and easily see which package has which feature.
Give these tips on packaging a try, so you can make your services more appealing to clients and boost your sales.