What’s the point of package pricing?

Someone shows an interest in your services and asks you for a price. Fantastic! They tell you what they want and off you go to work on a proposal.

Stop!

Before you go any further, there are several things to bear in mind if you’re to get as close to the right price as possible and make a sale.

The problems with pricing

With no universal price list to guide you, it’s incredibly difficult to work out how much to charge. You could have a look at your competitors’ prices but, as they’re in the same boat, their price may be far from “right”. Offering one single price point is therefore a risk.

This is because:

  • you have no idea what the customer’s budget is or how much they’re willing to spend
  • you and your customer are looking at the price from two very different standpoints – you based on the amount of work involved and the customer on the end result
  • services are intangible so you’re relying on the customer’s perception of what you’re worth. Very difficult to assess perception when you can’t see it through their eyes
  • no two customers place the same value on the same service so a price that’s right for one customer isn’t necessarily right for another
  • no two customers require the same level of effort, and you won’t know what that level is until you start working with them
  • keeping the price low to clinch the deal could mean having to cut corners and not give the client the results they really want. Or you could end up spending more time than you can afford and having to turn away a better paying customer.

Offering only one price point is a gamble and you can guarantee it will always be the wrong price. When someone asks for a price, they’ll have a number they’re prepared and willing to pay. The probability of it being the same as your price is pretty much zero. If it’s lower it means your price could be too high, and they won’t buy so you’ll lose out. If it’s higher then they may well buy from you, but you’ll have left money on the table and lost out on better profits and better cashflow.

The principles of packaging

Packages are there to offer multiple price points. They’re ideal for both products and services but work particularly well for the service sector.

The aim is to bundle several services into a single combined unit. Where the customer has the option of buying each service individually it’s important to ensure that the combined price of the package is less than the total of the individual services.

The “features” of each package should be based on the pain points and needs of the customer because customers are focused on the end result and not on how you get them there.

There’s no limit to the number of packages you could offer but for most businesses the magic number is three. Any more than that and the decision can become too difficult, and they’ll walk away.

The power of packages

There are many advantages to offering packages:

  • It gives customers more choice and makes them feel more in control of the buying process.
  • It offers them a well-built pricing structure that’ll help them scale as their business grows.
  • We all like to compare prices to make sure we’re not paying over the odds and means they’ll compare the packages to each other rather than compare you to your competitors.
  • The customer’s response will move from a simple yes or no to a “which one”
  • You’re far more likely to be within the customer’s budget
  • With carefully constructed packages, customers are less focused on price and more on value and will often pay more than the price they initially had in mind
  • Outlining the “features” or scope of each package educates the customer in what you do. No matter how obvious it is to you, your customers will have no idea
  • It encourages the upsell as customers are made aware of the higher value packages they can move up to and the other services you sell
  • Bundling the right features together gives a better result thereby increasing customer satisfaction
  • Outlining the scope of each package helps avoid “scope creep” and better manages customer expectation leading to less customer dissatisfaction

More sales, more upsells and more happy customers means more profit and more cashflow. What’s not to like?

Pricing the packages

It’s important to ask the customer the right questions to get a feel for the scope of work involved but you’re really aiming to price the packages based on how much value the end result brings to them not on the individual “features” or the time spent.

As you expect most people to opt for the middle package you should build that one first and base the “features” round the pain points or needs of the customer. You then buffer that package with a cheaper option and a more expensive option for all the reasons listed above.

Once you’ve set your prices you need to constantly monitor them. You’d expect 80% of customers to go for your middle package with the other 20% going for the cheapest and most expensive. If too many customers are going for your most expensive package, then you’re too cheap and need to put your prices up. If, however, too many are going for your cheapest then you need to review your marketing!

And finally…

Just as prices should never be set in stone neither should your packages. The “features” in each package will change from one customer to another but the basics behind them will remain the same. Offer one single price to a customer and you’ll have a 50/50 chance they’ll buy. Offer them three prices and you’ll have a 90-100% chance they’ll buy.

Are you ready to package your services?

Margot Clarke
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Margot Clarke

Margot provides business support to a variety of companies across a wide range of industry sectors. With an international background, she is highly experienced in helping business owners understand what’s really going on in their business. If you’re struggling to understand your numbers, Margot’s thorough approach to accounting allows you to control your cash flow and manage your figures, so you can meet your business objectives.