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How to Price your Services; Taking the Scary out of Pricing

It all starts with an idea for performing a service for others, and charging for it.  The hardest part comes next, deciding what to charge for the service!  It needs to be reasonable, and yet profitable.  When you share the price with potential clients, do they eagerly hand over the money, or do they respond with "We will keep you in mind if we need anything..."  This can be deflating, as many times this means that they are turned off by your pricing.  So, how do you come up with pricing that makes the potential client feel motivated to hire you?

The Deal No One Can Pass...

We need an example of a service...How about window washing?  As a window washer you will be spending time cleaning windows.  This might be a relatively easy task, if the windows are close to the ground.  But, what if they are 200 stories up?  How can you price your service competitively, and turn a profit?  What price point will make the client say "Your hired!"  There are several factors to consider when coming up with the perfect price point.

Let's start with how you will get to the Job Site.  Your mode of transportation will need to be a factor in the pricing.  If you ride a bicycle to the job site, your price will be lower than if you drive a car, and higher if you are driving a truck.  Consider the reasons for this:
  • Vehicle Maintenance
    • On a bicycle, the maintenance costs will be very low
    • For a car/truck the maintenance costs will be:
      • Total cost for Oil Changes, tire rotations/replacements, tune ups, etc. per year divided by your business hours.  At the time of this writing average car maintenance costs are $9,122/yr
      • This gives us a starting point for our Service pricing:  $9,122 / 2080 hrs = $4.39/hr
  • Tool Maintenance
    • Upkeep on your Squeegees, sponges, rags
      • These items might be fairly inexpensive, but should be accounted for in your pricing.  Take the purchase price of these items and decide on how often they should last.  For example:  Replace all those tools once a month - $30 x 12 = $360/yr
      • Now we divide this by our hours:  $360 / 2080 hrs = $.17/hr
  • Consumables
    • You will need soap and water
      • Soap and water will be calculated in the same way:  50/gal $380 x 24 = $2,280/yr
      • And the hourly rate:  $1.09
Most likely you are looking at this and thinking, "Wow!  It barely costs anything to wash windows!"  So far we only have the "Break Even" number.  That is the amount of money we would need to make per hour to just pay for our materials and transportation to the jobs, $5.65 per hour would not feed your family.

How to Feed a Family

The next step to figuring out the hourly rate is more scientific.  How long would it take you to clean 10' of windows?  Lets say every 10' equals 30 minutes of your time, so 20' per hour is the goal.  Now we can figure out how much time is needed to clean any windows based on the amount of time it takes to clean a specific area of windows.

Another factor in cleaning windows is the danger level.  If the windows are close to the ground, the danger is minimal, and limited to tripping or being stung by a flock of bees.  If the windows require a ladder or hoist, the danger level just got exponential.  So, where is a reasonable price point?  Some factors that we haven't even touched, deal with health insurance, and 401K plans.  But for now lets just say you are looking to pay your bills and eat.  How much is your time worth, and will you be employing helpers?

Looking at what the top 10%, and the other 90% of Window washers make per hour, you can easily find a resting point for your rate.  The top 10% (at the time of writing) make $20.71/hr, and the other 90% make $13.89.  Considering that this is what the person doing the job gets paid, you can easily double that for the client price.  So, we have settled on:  $47/hr.  

Conclusion

Pricing any service, takes work.  You have to figure out what the service will cost you and what your time is worth.  If you want to be profitable you will also need to find out what other businesses like yours are charging, and decide if it makes sense to under-cut, or if there is something you can provide that will make a higher price appealing to your customers.  You might come up with some special "signature" service that makes your higher price seem small.  And keep in mind that the service cost should account for any helpers you might need, as well as any benefits you will be offering to your helpers or yourself.

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