Pricing a New Service When There Is Nothing to Compare

By Trevor L Taylor

A service with no competitors still needs a price, and the best first price comes from the size of the problem you solve for the buyer rather than from the hours you spend delivering the work. Treat that price as an opening question and let real buyers answer it. This piece sets out why, how to run the test, and where the method stops working.

Picture a founder at a laptop with a blank pricing page open and a service nobody else offers yet. There is no rival page to read, no range to sit inside, and no customer yet to ask. The cursor blinks in an empty box, and every number the founder types feels equally arbitrary.

A blank pricing page offers two paths

The first path starts from the inside. You add up your costs and the hours the work takes, you add a margin, and you call the result the price. It is quick, it feels fair, and it produces a number you can defend to yourself.

The second path starts from the outside. You ask what changes for the buyer when the problem goes away, and you set the price as a fair share of that change. It asks more of you, because you need real conversations before you have a real number.

Each path asks for something different. The first asks for a spreadsheet and an afternoon. The second asks for several weeks of attention spent with people who might become customers, and a willingness to hear that your idea is worth less than you hoped.

The first path has one real strength. Costs are knowable, so you finish quickly and you never quote a number that loses you money on every sale. Its weakness is that costs describe your side of the work and say nothing about what the work is worth to the person paying for it. Two services with identical costs can deserve very different prices, because one removes a small annoyance and the other removes a large and recurring loss.

How do you price a service with no competitors?

Price it from the value the buyer receives, then check the number against your own costs. Estimate what the problem costs the buyer while it stays unsolved, and set a price that is a fair share of that cost.

Start by learning what customers really want and what they will pay for it. That research does not need a large survey. Ten careful conversations with people who have the problem will teach you more than a month alone with a spreadsheet.

Ask three plain questions in each conversation. What does this problem cost you today in time or in lost work? What have you tried so far, and why did it fall short? What would it be worth to have it handled? The answers give you a range, and the middle of that range is a sensible place to begin.

Cost based pricing starts from your side of the table, and the buyer never sees your side. A value based price rests on the worth customers place on the service and on what they are willing to pay for it. A price set too low gives away value and signals that the work is minor. A price set too high ends the conversation before it begins.

Costs still matter, just in a different role. A workable price sits between two limits, the lowest price that covers your costs and the most a buyer is willing to pay. Finding the break even point helps you price smarter, because it shows the lowest price at which the service covers its own costs. What the buyer will pay is the upper limit, so the whole task is finding the right point between them. A service that solves a costly problem can carry a higher price than its hours suggest.

What should you treat the first price as?

Treat it as a question you are asking the market. The reaction you get tells you far more than the number itself.

Say the price early enough to hear a real answer. A buyer who never hears a number will keep describing the problem politely, and you will leave the conversation with encouragement and no information. State the price plainly, stop talking, and let the silence do its work.

Quote the price to a real buyer out loud and watch what happens. Instant agreement usually means the number is low. A long silence followed by a list of objections usually means the number is high or the value has not been explained yet. A thoughtful negotiation usually means you are close.

Change only one thing at a time. If you raise the price and rewrite the description in the same week, you will not know which change produced the new reaction. Hold the description steady, move the price, and note what changes.

Write down each reaction on the day it happens, along with the price you quoted and who heard it. After five or six quotes a pattern appears that no amount of private reasoning would have found.

Without comparables, the first price is a question you put to the buyer, and the answer is worth more than the number.

Then review the price on a schedule. Bring it to the same meeting that covers your numbers and priorities, as laid out in a monthly operating rhythm for a growing company, so the price gets revisited on purpose and never only when a deal goes wrong.

Where this approach stops working

Value based pricing depends on buyers who can say what the problem costs them. Some buyers cannot, because the benefit arrives slowly or is spread across many small things. In that case the conversations produce vague answers, and you are left with a floor and a hunch.

The method also assumes you can reach enough buyers to hear a pattern. A founder with two prospects has two opinions, and two opinions are a start rather than evidence. Until the conversations pile up, keep the price easy to change and say so to early customers.

Early prices are also almost always wrong, and that is expected. A price that fits the first ten buyers may fit nobody a year later, once the service is better known and the problem is better understood. The method gives you a defensible starting point and cannot give you a final answer.

A price set from value can also drift above what a small buyer can afford, so you may need a lighter version of the service for them. Deciding that on purpose beats discovering it through a string of lost deals.

A new service rarely arrives with a price attached. You build one from the buyer's problem, test it in plain conversations, set a floor from your costs, and revisit the number as you learn. Do that for a few focused weeks and the blank pricing page becomes a working document. Whatever number you choose, write down why you chose it. When the next buyer reacts, you can compare the reaction with the reasoning and learn from the gap.

Trevor L Taylor is an investor, entrepreneur and lifelong athlete committed to supporting education.

Photos by Mike Tinnion and Aaron Lefler on Unsplash

Sources

Selecting an Appropriate Pricing Strategy
Product Pricing Choosing a Pricing Method
Plan your business Small Business Administration