How High is Too High: 5 Pricing Strategies for SEOs
Many businesses take shortcuts when pricing their services. The process seems like too much hassle for them whereas all they want is to get more clients. So they copy their competitors or offer the lowest price possible.
And just as much as both approaches are fine (depending on what you want your business to achieve of course) it is wise to discover other ways to do so.
Last week I discussed various pricing models you could use in your SEO practice. Today I want to talk about another crucial aspect of coming up with what to charge – a pricing strategy.
Pricing strategies refer to different methods a business can use to price their products or services. When it comes to services like SEO, almost all companies base their prices on costs (incl. salaries and fixed costs), average time required to deliver the work, additional costs such as marketing and advertising and so on. But all this data doesn’t completely tell you how much to charge customers. Should you imitate the companies I mentioned earlier and just copy your competition? Or even undercut them a little to win business from them? Or should you try to set yourself apart from them with a higher price?
There are many different pricing strategies but for a new SEO consultant, these 5 apply the most:
1. Penetration pricing
Penetration pricing is ideal for any small business that’s only starting out and is looking to build their market share. A company that uses penetration pricing typically sets their prices low in hope of gaining a market share. The primary goal for this strategy is to gain as many new clients as possible and then use various strategies to retain them for longer. Once the market share is gained though, a company usually increases their prices to match the industry average.
There is a problem with gaining customers this way though. These customers are typically price sensitive and are likely to move away from you when someone offers them a lower price or you increase yours. Moreover, offering low prices for too long might have a negative effect on your market positioning and the type of clients you will be able to attract in the future. Not to mention that a competitor offering something better, or one that’s more efficient and enjoying a better reputation might still take away crucial clients from you.
2. Skimming pricing
This is an opposite strategy to penetration pricing. When price skimming a company deliberately sets their prices high at the start to quickly achieve profit. After a while though they start reducing the price to make the product more available for the wider market.
The challenge with price skimming though is that in order to utilise it, you need to offer your customers something they can’t get anywhere else. Customers must see a higher value in what you are selling in order to justify paying a higher price. It doesn’t have to be a specific offering or a new and unique service. A proven reputation, proprietary software, hosting industry events, becoming a recognised speaker or a book author can all differentiate your business and allow you to skim price.
3. Competitive based pricing
A competitive based pricing is often used when price is the only factor customers use to differentiate between companies. In such situations (and SEO easily falls into this category) potential clients end up shopping by price, since they see no other differentiating factors. To avoid losing sales then you may have to adjust your prices to match your competitors.
Other times this pricing model is used are times when customers’ perception of value shifts due to unforeseen circumstances (I.e. the banking crisis couple years ago which forced many companies to rethink their purchasing behaviour and focus on seeking better deals / lower prices rather than value).
4. Cost based pricing
Cost based pricing is one of the most common strategies employed by businesses of any size. As the name suggests, in this strategy you figure out your total costs for delivering the service and add a percentage to it which is your profit. The total sum of cost plus profit becomes your price.
The biggest problem with this strategy though is that it’s very company centric. Your price reflects your costs and profit but doesn’t take the value into consideration. If your buyers perception of value does not match the sum of profit and cost, your price will always be too high.
5. Premium pricing
In the premium pricing you deliberately set the price higher than your competitors to reflect how exclusive your offering is. This strategy uses price to reflect the quality and attract a better-type-customers while weeding out the ones you don’t want to work with. Many high profile studios use premium pricing to deliberately position themselves as better than their competitors. At the same time, they use the price to send the message who they really want to work with (large enterprises, government contracts etc.)
Creative commons image by Scott / Flickr