Pricing Your Product or Service

Two days ago, I was having a debate with some family members about how someone should price their services. The service in question was math tutoring for high school students.

Man tutoring a young girl in math

Generally, there are location and student-level standard pricing ranges for tutoring. For example, in Bend, one-on-one tutoring for a high school student generally ranges from $25-40/hour. In Las Vegas, the same tutoring ranges from $40-65/hour. Tutoring a college student may raise the price $5-10/hour more, and graduate school subjects $10-20/hour more.

Now, what happens when two students want to pair-up and get group tutoring? Should they each pay $40/hour, or should it be fixed at $40/hour?

One person proposed that the work is essentially the same, so the pay should essentially be the same. Another chimed in that there is increased liability with offering tutoring to multiples, so pay should increase.

Now, what about three students combining for group tutoring? (It didn’t go beyond three, because this was the tipping point for argument’s sake, and was pertinent to the sample-at-hand.)

It’s still only one hour’s worth of work. But, there is increased liability: meaning, if there was some sort of catastrophic change from B-students to F-students failing everything, the tutor might be held accountable by the student’s parent.

Here’s how I dissected it: The work input is essentially the same. The liability has increased. But, neither of these should be how pricing should be determined. Pricing is determined by the value that the customer is getting from the product or service.

I’m not saying that each customer should pay $40/hour. Because:

  1. The service changes when it turns from individual tutoring to group tutoring. No longer is each question your question. The pace may be different, and progress is likely to be slower. This should lower the individual rate significantly: it’s not tailored just to you.
  2. The students did a group purchase, making it easier to plan and organize for the tutor than multiple single-sales would be. This is the entire business model of Groupon. This alone deserves a discount.

Accounting for both of these elements, I believe that the rate should drop to about half the normal hourly rate per-student. And, as more students get added the value to each student changes (picture 15+ students) There should be a continued drop in price to a baseline. At which point it’s no longer tutoring, and instead an outside-of-school class.

If the service is different. The price should be different.

The Takeaway

The amount of work that’s put into a product or service is essentially irrelevant to the pricing. This is the employee-boss mindset. Forget it. It’s important for a boss to know when paying an employee to determine that employee’s general productivity and customer interaction. But for a business that charges customers, it’s irrelevant.

Whether I pay you $40 or $400 or $4000 is determined by the value I get from your product or service. If it only took you one hour to create something I can leverage to make $1000, why would I care if you charge me $200? I’d love you for it!

Know your customer.

Know the industry and market standard.

Know your service-value. And remember to price based on this.

But, if the value changes when you scale (ex. in-person math tutoring), the price also has to change.

Good luck! Ask questions in the comments below.

Photo credit: Tulane Public Relations cc

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