Pricing Strategy - Types of Fee Structures to Use

Pricing strategy is like walking a tightrope: price too low and you lose money that is rightfully yours; price too high and you lose business. Without knowing how to bill and what to charge, you risk looking like an amateur to the prospects that you desire most as clients. And it can take years to recover from a poor pricing strategy.



There are three common ways to determine the pricing strategy for an IT service business:



Price-fixed

Per PC or per server basis

By the hour



Price Fixed Pricing Strategy

In order to offer a fixed pricing strategy you need to know the exact scope of what you're doing. You also need very tightly defined parameters so that you don't end up doing work that is beyond the original scope.



Per PC or Per Server Pricing Strategy

This type of pricing strategy is pretty much the same as price-fixed, except you need to have a handle on unit costs. You need to know what's going to change as you add or remove a PC or add or remove a server, and how it scales up the project. A per PC or server pricing strategy does give you more flexibility if the scope of the project starts to include more boxes. Some IT service businesses choose to combine the price fixed and the per PC or server pricing strategies.



By the Hour Pricing Strategy

Another name for this pricing strategy is "time and materials" pricing. This is the most commonly used pricing strategy in the IT service industry. You set an hourly rate and you may choose to add a markup on the materials you provide. This is the most flexible pricing strategy and the one where you are most protected when the scope of the project goes beyond your original estimate.



Bottom Line on Pricing Strategy

There are three main categories of pricing strategy. Before deciding on the best pricing strategy for you and your business, you should consider the pros and cons of each. The way you price your services has a significant effect on your business' profitability and longevity - take your pricing strategy seriously, right from the start.



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Joshua Feinberg, co-founder of Computer Consulting 101, helps computer consulting businesses get more steady, high-paying clients. Learn how you can too. Sign-up now for your free access to these field-tested, proven business strategies on the Computer Consulting 101 Blog.