Pricing Strategies: Are you earning a wage?

Setting prices is a common problem for self-employed groomers but there are strategies you can use to simplify the challenge and improve the chances of success for your business.

The first goal is to ensure your prices will generate profit, so the ideal starting point is the cost plus pricing method, also known as mark-up pricing. This strategy involves adding up all the costs of offering a service or product to your business and simply adding a profit margin on top to create the price.

How do you work out the total cost? A simple way is to determine an average per groom. You would list all your running costs per month (rent/mortgage contribution, water rates, electricity usage, consumables, and insurance etc) and calculate your total cost per month (let’s just pretend this comes to £1000). Then you would work out the number of dogs you would groom each month (so if you do 4 per day, 5 days per week, and there are 4.5 weeks per month that’s 90 grooms per month). Then divide your total costs by your average number of grooms to get your average cost per groom (1000/90 = £11.11 per groom). Let’s round that up to £12.

Now you can create the individual prices per dog based on the time it takes to complete the groom. You need to decide what to pay yourself or your staff per hour in wages. For ease of calculation let’s just pretend that’s £15 per hour. So, if the groom takes 2 hours to complete, the wage cost is £30, plus your £12 running costs, we get £42. All businesses should have a profit margin, or a markup, of around 20% to make the business a viable business. 20% of £42 is £8.40 so we now have our customer’s price of £50.40 for a 2 hour groom.

A £15ph wage full time works at around £2500 per month. If you wanted to incorporate a 4 week annual holiday allowance into your prices, you could add £2.50 to each groom because 90 grooms per month for 11 months equals 990 grooms per year. £2500 divided by 990 is £2.53. Alternatively, this could be used as a contingency cost in case you experienced a fall in the number of grooms you did for a short period.

Simple enough, eh? Hmm. There’s more to consider, let’s look into other pricing strategies.

Competitive pricing is a strategy that involves setting prices based on the prices of competitors. It could be flawed if this is the only strategy you used because of the varying business models from mobile groomer to home groomer to shop owner meaning that the running costs between businesses can vary greatly and if you used this method without balancing your books could mean your business fails. It could mean, on the other hand, that if your running costs are low and your competitor is charging more, you could increase your prices to match and therefore increase your profit margin and generate business growth.

Penetration pricing is a strategy that involves offering a low price point when introducing a new product or service to the market to create an initial market share and to generate word of mouth referrals, and to then increase the price later on down the line. This can be seen a lot in new beauty brands because it is a highly competitive market. This was a trend seen in the grooming industry when the ultrasound toothbrush was first launched because it was a new technology the required groomers to invest money, time and for the service to build trust in consumers in before it could gain movement.

Value based pricing is a strategy whereby prices are set by what a customer is prepared to pay. If the customer perceives value in the service, they will pay more for it. This strategy is used by many groomers who have invested knowledge into a particular skill or breed. That could be hand stripping a range of terriers or a cocker spaniel, scissoring bichons or poodles or groomers who have a holistic approach to their services. These skills often become a USP (unique selling point) and attract a specific customer profile and a higher price. Teeth cleaning has slowing risen in price since it launched because consumers now see the benefits of it.

Economy pricing is a strategy is whereby the cost of a service or product to the business is low so the prices are set low, which attracts a high volume of sales. Groomers who have historically charged low prices for all grooms have ended up with groomer’s burn out and it is unwise to use this strategy for all grooms. However, a groomer who specialises in cocker hand stripping, for example, may still be likely to groom some smooth coated de-sheds like a Staffordshire bull terrier or a jack Russell, and they wouldn’t necessarily be able charge those customers for their expertise on cockers. Peppered into your days of matted doodles, though, they can make for a refreshing filler groom because they’re less mentally demanding and a diverse client base can provide job satisfaction.

CPV – Customer Perceived Value

We mentioned that customers who perceive value may pay more for a service. But to achieve customer perceived value the benefits of a product or service must outweigh the cost and meet the customer’s needs. There are four main types of customer value:-

Functional value – does this product or service solve a problem and does it perform well? My kettle at work boils water – it performs it’s desired function. My brother’s kettle reaches boiling point more quickly than mine and it is digital so it enables him to alter the temperature he wants it to click off at, and he has it set at 80 degrees for his coffee. He paid more for his kettle because it had the extra functions.

Monetary value – does the price point match the perceived worth? Let’s continue with kettles for examples. You can currently pick a branded digital kettle up for around £60 as opposed to a normally functioning branded kettle at around £30. This suggests that a coffee lover who drinks speciality coffees sees the value in the extra features and is willing to pay double.

Social value – does this fit in with their social status, social circles or fashion/trends? Someone who hosts regular dinner parties might want a designer kettle that looks nicer, matches their kitchen design or be from a particular manufacturer and are looking to pay over £100, such as a Smeg kettle for its design or even a Bugatti kettle priced currently at £249.

Emotional value – does this make people feel the necessary emotions to purchase? That could be a wide range of emotions depending on the product or service. An eco conscious buyer might look for an energy saving kettle and might compare the power usage to bring it to boil or the materials it’s made from, maybe preferring a metal one over a plastic one or one from a manufacturer with carbon friendly pledges, which would also lend itself to social value as well.

To design pricing structure that suits your business, start with determining your costs, remembering to account for wages, then decide what strategy is best for the kind of service or product you’re offering to set your price points. The strategy you choose must meet the customer’s needs and your target customer profiles to be successful. Add in your pricing psychology to finalise your prices to improve your business’s success. To learn about pricing psychology and customer needs, visit the Career Hounds website to view the pricing strategies lesson and the customer experience lesson.