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How to Create and Use a Pricebook

What is a Pricebook?

A pricebook is a document holding information about the products and services your business sells. It lists every product and service, their descriptions, prices, and discounts your business offers.

If your business requires personal contact in order to sell its product/service (a demo, a proposal, or a phone call), you’ll likely benefit from having a pricebook. Some industries where pricebooks are used include:

  • Consulting Companies
  • B2B App Companies
  • Service-Based Organizations

Why Have a Pricebook?

There are 2 reasons to have a pricebook: (1) Defining the boundaries of your work, and (2) Standardizing your pricing, avoiding inconsistent pricing, random discounts, and arguments among clients.

Starting off with boundaries, a pricebook clearly defines your value proposition. It clearly states the work you do (and don’t do). Pricebooks act as a control, turning away those who desire other, more custom, products and services.

An argument we often hear against pricebooks is that “people come to us for different jobs” — suggesting pricebooks eliminate opportunities to make extra cash. They do so intentionally (and we recommend you use a pricebook anyway).

Theoretically, you could offer every product and service in your neighborhood, but that will only get you so far. Instead of being Joe, the guy who does YouTube Ads, you become Joe, the guy who does everything.

The benefits of offering specific sets of products and services far exceeds the randomness and run-around of not. For founders, your business becomes easier to explain, promote, and scale. For customers, the business offers a clear set of products and services making the value proposition easier to understand, use, and explain (sharing word of the business with others).

In our experience, founders who chase wallets, offering many products and services, will get by. They’ll make a decent living and enjoy their trips while suffering above-average stress-levels and having negative word-of-mouth comments made about the quality of their products/services. On the other hand, founders who emphasize differentiation, choosing to specialize in a particular product or service, will see brighter days. These entrepreneurs will take a longer time to build their business, but will benefit from their choice to specialize; accelerating their growth.

On the standardization side of operations, pricebooks allow founders and managers to avoid situations where some people receive lower prices than others. We call this the sidedoor deal — talking to higher authority managers and friends to get a deal.

This is a bad practice and should not be exercised in your business. If offering discounts, they should be applied like a coupon. This topic will be covered later in this guide.

Bottom line, it’s very good to specialize in your products/services. Doing so helps you define the boundaries of your work.

The Structure of Pricebooks

Pricebooks are designed to be a reference document for internal purposes (typically a spreadsheet). Pricebooks will most likely be used by founders and salespeople.

A basic pricebook has 3 parts:

  1. The Services Your Business Offers
  2. The Bundles Your Business Sells
  3. The Discounts Available in Your Organization

We recommend creating and maintaining your pricebook in a spreadsheet.

1. The Services Your Business Offers

On the first tab of your spreadsheet, begin listing the services your business offers. These service listings will include a description and price-per-unit if applicable.

See the image below for an example.

Services Sample:

Products Sample:

Listing your products and services is step one in creating a pricebook. Everything else will build off the items and descriptions captured in this tab.

Completing this step means you’ve successfully defined what your business does (and doesn’t) do.

2. The Bundles Your Business Sells

Next comes the bundling of your services. Instead of charging customers for each individual service you offer, group some of your services together into a package that makes more sense.

For example, when I offer marketing services, I bundle the variety of my services together and charge clients based on the bundle they want; 20 hours, 50 hours, or 100 hours. Depending which bundle they choose, they get full-access to my services for up to that amount of budgeted time per month — use it or lose it.

This works out better than charging for each individual service. Imagine if I were in the middle of a marketing project then stopped and said “you didn’t buy the social media service”. That would disrupt the flow of service, raise the discussion of purchase again, and extend the execution of a project. Don’t charge this way.

For those of you selling B2B applications, include your app as part of the bundle to relay the value of your value proposition. A bundle for an app business might be:

  • 12 months of our application (paid quarterly)
  • 6-week onboarding plan
  • Unlimited support calls
  • 50 hours with our on-staff growth consultants

You can see an example of bundles in the image below:

3. The Discounts Available in Your Organization

Like the items you listed at the beginning, you’re now going to list the discounts available in your organization. These entries will include Discount Name, Discount Type (percentage or amount), Discount Description, and Discount Eligibility Criteria.

By listing your discounts, you standardize your control over price adjustments. Instead of giving random discounts to customers, you can apply a pre-determined discount to their selected bundles.

Some discounts you might want to consider for your organization include:

  • Early Adopter Discount (available to early innovators and adopters of your business)
  • Partnership Discount (available to partners who sell your services as part of a large consulting arrangement)
  • Annual Contract Discount (available to customers who are will to commit to 1 year of services)
  • Family Discount (available to families making a bulk purchase)

These are just a few examples, but you can create your own. The purpose and intent of this discount methodoloy is to standardize your pricing among founders and salespeople. This approach also avoids conflicts where some clients are angry that they’re being charged more than other customers.

Using Your Pricebook — A Real Life Example

Suppose Sarah sells marketing services to organizations.

Her sales process includes a video conference call, requiring her to speak to the potential customer. Because of this step, she decides to use a pricebook as part of her operations.

Sarah begins the conversation by telling the potential customer that she offers a variety of services such as advertising and campaign management, and that her services are available through monthly retainer bundles of 20-hours, 50-hours, and 100-hours.

The potential client is interested in Sarah’s 20-hour per month bundle. Sarah offers to prepare a proposal with an attached quote.

Sarah then accesses her template for sales proposals, copies and pastes the service descriptions outlined in her pricebook (updating the proposal), and includes a section of her quote highlighting the discount amount of committing to an annual contract.

Delivering the finalized sales proposal to the potential client, they see the discount information available in the document. The discount description is formally written and appears standardized; relaying a clear explanation of the discount amount and why it exists.

The potential client decides to negotiate the contract and ask if the percentage amount of the annual discount can be increased. Sarah replies along the lines of “No, this is a set discount. Our annual discounts only increase if you choose to go with a larger retainer amount”.

At this point, the potential client decides to stay with the 20-hour consulting retainer, billed annually (receiving the discount).

Price Testing vs Pricebooks — How to Set Your Price

Members of the SaaS community are often encouraged to test their pricing. They do this by continuing to increase their prices until someone says ‘no’. We believe this approach to price testing is wrong.

Pricing should be calculated based on the unique positioning of an organization. Using a positioning map, founders can identify which companies are considered competitors and to what they charge for their services. Based on what prices are found, entrepreneurs can set their pricing to be reasonable in comparison.

Keep in mind, some of your competitors might not be making much money. This is why it’s important to explore and research your competitors to understand if they’re performing well (and how). Once the failing organizations are removed from the batch, founders can calculate the real prices the market is willing to pay.

Conclusion

Pricebooks standardize your products, services, prices, and discounts. They can be used to quickly construct new custom sales proposals, and eliminate the nortorious sidedoor deal fiasco.

If you’re getting started with a business, or are revisiting your sales operations, AND you sell to businesses (requiring human interaction to close a sale), then pricebooks are a must-have for success.

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