Creating the Right Pricing Strategy

How should you determine what rates to charge? Traditionally, the local sheriff or constable’s office set the standard on how much to charge for serving a single instrument (one court document). This comes from the fact that the sheriff (the local shire reeves – original pronunciation for a sheriff from the old English dialect) were the ones that served civil process before private process servers came into being.

I don’t consider them the only factor, as the private process serving industry came about in large part due to the volume of work available. If you couple that with a need for quality and speed that cannot always be provided by the overworked understaffed sheriffs and constables, and you can understand the industry growth.

Whether you are creating a strategy to price a product or price a service the process, and the thought behind it, are similar. The primary difference being that with a product you easily know the cost at which you will purchase said product. Selling a service however, is not quite as cut and dried when figuring out the “cost”. You do, however, have more flexibility when pricing service than when pricing products.

Process – The popular Cost-Plus pricing formula says you should take the cost + overhead + desired profit margin to arrive at a price to the marketplace. To simplify we can include overhead in our cost calculations to determine what to charge.  Cost + Profit Margin = Price of Service

Determine your costs; i.e., how much does it cost you to provide the service? The cost of producing any service is made up of the following three parts, according to advisement of the US Small Business Administration.

• Materials cost – what goods do you use in providing service?
• Labor cost – what direct labor costs do you incur in providing service? Reimbursed expenses associated with labor costs should be considered such as gas, wherein you may want to factor in distance traveled. It has been said that for every dollar per gallon of gas, you should factor in a cost of $5.00 for the service. With today’s rising prices of gas hovering around $3.00 a gallon that equates to $15.00 for a cost of service. Should prices rise toward $4.00 per gallon your cost of service will rise accordingly, i.e., $20.00.
• Overhead cost – these costs are incurred whether or not you are selling, be it a product or service. What are your indirect costs, such as non-server labor (yourself or other administration or management personnel), rent, taxes (income tax, property tax, franchise tax, etc.), insurance, advertising, office supplies, office equipment, depreciation, utilities, mileage, etc.?  Figure in a reasonable amount of your overhead costs for each service provided on either an hourly or percentage based on your business model.

 As an example, if you have an overall price of $60.00 per court document served in your local market, $30.00 would be for the actual serving part of the assignment (i.e., to cover your time to go from your office to the service address. The remaining $30 would break down to $15.00 to cover fuel costs and the other $15.00 to cover overhead.

Determine a fair profit margin. Profit margin is that amount added to the costs of doing business to ensure you are profitable. Take some time in determining your profit margin, as you don’t want to add so little that you find yourself shutting your doors from lack of profit, nor do you want to add so much that you find yourself shutting your doors because you priced yourself out of the market.

Check with me on my next post on Creating a Competitive Advantage. Have you checked out my book, “The Business End of Process, Running a Process Service Company From the Ground Up”? It’s available on Amazon.com.http://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Daps&field-keywords=%22The+Business+End+of+Process%22&rh=i%3Aaps%2Ck%3A%22The+Business+End+of+Process%22&ajr=0. It won’t’ tell you how to server process, but rather provides the nuts and bolts about how the processes and procedures I use to run a successful process service business.