The Art and Science of Pricing

by Tyrone Holmes, EdD, CPT on Sep 24, 2013

Fitness Entrepreneur

Strategically analyze what you want to charge.

Pricing your personal training services can be a confusing endeavor. In fact, it may be one of the most difficult issues you face as an entrepreneur. This article demystifies the process by describing three ways to set your fees: market-based, income-objective-based and value-based. Here you’ll learn about the different approaches and explore the pros and cons of each.

The Market-Based Approach

This approach involves setting your fees relative to current market conditions. Typically, you collect data on the fees charged by individuals working in a particular industry, sometimes within a specific geographic location (e.g., personal trainers in Chicago). Then you use your fees to create a market position, such as

  • below market, where you charge less than the industry average;
  • at market, where you charge the industry average; or
  • above market, where you charge more than the industry average.

To get a general idea of fees in your area, perform keyword searches on terms like personal trainer and wellness coach, and visit the websites that are returned. Then review the fee structures for trainers and coaches in your geographic area to get a general sense of the going rate. It’s not empirical, but this approach can provide you with useful information.

Advantages of this approach. First, the market-based approach lets you develop a clear picture of the average fees in a particular discipline, such as personal training or triathlon coaching. Second, as previously stated, it allows you to use your fees to create a market position. For example, if you set your fees below the market rate, you can develop a brand that emphasizes equal value for less money. Set your fees at the market rate, and you can promote your goods and services as providing more at the same cost. With above-market prices, you can gain a competitive advantage by emphasizing the unique and elite quality of your services. The key is to determine the market rates in your discipline and decide how you want to set your fees in relation to those rates.

Disadvantages of this approach. The market-based approach can be difficult and expensive to implement, especially if you want to collect empirically sound data. More significantly, with this approach you develop fees based on what other people charge rather than on the value you actually provide to clients.

The Income-Objective Approach

With the income-objective approach, you set your fees based on desired revenue. You decide how much money you want to earn, and you figure out what you must charge to generate that income. Applying this approach involves determining these six values:

  1. your desired income,
  2. the number of clients you can train/coach per week,
  3. the number of weeks you want to work each year,
  4. your annual billable hours,
  5. your hourly fee, and
  6. your monthly rate

See “Income-Objective Example” for an illustration of the income-objective approach for Erica, a full-time personal trainer who wants to earn an annual income of $50,000. Based on her experience, she believes she can attract 10 clients for an average of three training sessions per week for a total of 30 weekly billable hours. Erica wants to plan for 48 weeks of work per year, which leaves 4 weeks without billable hours. This includes vacation time and the inevitable loss of billable hours due to missed client sessions, as well as losing and adding clients unexpectedly. As you can see, once Erica determines her desired income, weekly clients, billable hours and weeks worked per year, calculating hourly and monthly fees is simple.

As you review this example, keep three points in mind. First, the key for step 2 is to determine billable hours. These hours are fewer than your total work hours, because they do not account for non-billable activities, such as marketing and accounting. Second, the example provides the calculations for both hourly fee and monthly rate—but, in reality, you will use one or the other, not both. Third, the 11 months referred to in step 6 are calculated by dividing 48 (the desired number of workweeks in a year) by 4.33 (the average number of weeks in a month).

Advantages of this approach. The income-objective approach clarifies what you must charge in order to earn a particular income. This helps you manage your business more effectively, because you can continuously assess your progress based on your projected numbers. In addition, this approach can be very effective when used in conjunction with the market-based approach to identify your desired revenue, to determine the fees needed to generate this revenue and to clarify your market position based on these fees.

Disadvantages of this approach. First, the income-objective approach does not take expenses into consideration. You may generate a specific income, but that doesn’t mean you will earn a profit. Be sure to consider your expenses when determining your desired annual income. Second, the approach does not consider market conditions, which is why combining it with the market-based approach makes good sense.

The Value-Based Approach

Trainers and coaches use three common fee structures when charging their clients: hourly, daily and monthly. Hourly and monthly rates are often used in market-based or income-objective pricing strategies. Daily rates (e.g., half-day and full-day) might be used by trainers or coaches who are facilitating educational programs for organizational clients.

These are all valid fee structures, but they have two potential problems. First, they constrain your income, because they are based on time—and time is a limited commodity. Whether you charge your clients by the hour, the day, or the month, there are a limited number of hours in every day. At some point, you just can’t take on any more clients.

Second, time-oriented fee structures are based on inputs (e.g., time, deliverables and materials) and not on results. In other words, the fee is based on your ability to produce results rather than on your client’s ability to improve. The value-based approach addresses this problem by using a fee structure based on your ability to provide value and measurably improve your client’s outcomes.

For example, if you are an elite athletic trainer, you could use the market-based strategy or income-objective strategy to determine an hourly, weekly or monthly fee. Alternatively, you could use the value-based approach and charge significantly higher fees because of your demonstrated ability to help your clients get and/or maintain professional contracts. Assuming this is a highly valued objective, your clients will be motivated to pay a higher fee to receive a greater benefit. To employ a value-based approach to pricing, you need to take three steps:

  1. Determine your value proposition (what your clients are able to do because of you) by answering the following questions with every client:
    a. How will the client’s position be improved? Specifically, what does the client stand to gain?
    b. What does this mean to the client? Just how important is this outcome to the client? The greater the importance (i.e., value), the higher the potential fee.
  2. Clarify how you add unique value to the process. In other words, describe how you fulfill your value proposition and how this differs from what your competitors offer.
  3. Shift from time-based fees to project-based ones, and set them based on perceived outcomes. For example, instead of charging an hourly fee during 2 months of training, an elite athletic trainer could set a flat rate of $5,000 that emphasizes client outcomes (e.g., performing well in a professional tryout) instead of trainer deliverables (e.g., providing four training sessions per week).

To apply the value-based approach effectively, you need to consider the motivation of the client, your experience as a coach or trainer, the client’s perception of your expertise and what the competition has to offer. High client motivation, great experience, well-known expertise and relatively limited competition create a great opportunity for value-based pricing.

Advantages of this approach. The value-based approach allows you to generate the highest potential income. It also requires you to clarify your value proposition, which is helpful in many aspects of business development. In addition, to implement value-based pricing successfully, you must work continuously to enhance your credentials and experience.

Disadvantages of this approach. Like the other approaches to pricing, the value-based strategy is very difficult to use if you are relatively inexperienced or unknown. There is also no set fee structure, which can make this an uncomfortable and somewhat ambiguous process for some trainers and coaches.

Goal: A Profitable Business

Remember, setting fees does not have to be an overwhelming process. Evaluate the merits of each approach, and consider your experience, competition and business goals when deciding which will work best for you.

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About the Author

Tyrone Holmes, EdD, CPT IDEA Author/Presenter