Pricing and getting it right is an age old question. How much should you charge? But there really isn’t just one answer for this and if you are new to the business world it probably makes you feel a little uncomfortable.
Remember what you set out to do here with your business. Undoubtedly it was to make your business a success and to do this it will inevitably involve money. Charging right can allow your business to grow but it can also remind you of why you started out in the first place.
Have a conversation with yourself?
Yes, we really did just say this. Setting a budget and forecasting will always be helpful and something that we recommend. However, it is also important to reach out of your comfort zone and talk about money. Make yourself comfortable discussing money and this will make it easier to confidently put forward your rates to clients and customers.
Are you a product or a service-based business?
When it comes to pricing a product this sometimes will feel easier. This is usually because when it comes to products someone else is usually selling it. But don’t let this be your
only consideration. This is where the brand becomes a big factor in the decisions you make. Are you looking to mass produce your product or is your item based on quality? This will inevitably be a deciding factor in the price you decide on. If you are going for the latter that needs to be part of your brand. Don’t be afraid to shout it from the rooftops.
But I’m a service-based business – how should I set my pricing?
You will need to look at what others are charging to give you an indication. But again don’t be afraid to deviate from that. What makes you different? Are you going after a different customer base that your competition? It doesn’t always have to be about money – you may simply prefer to work with smaller businesses, to have that personal touch.
We personally believe as service providers it’s good to offer the customer options. Sometimes a customer doesn’t want to be told you charge X amount per hour. They want to know what the actual piece of work is going to cost them. So don’t be afraid to quote fixed prices but make sure you have done your homework. Factor in the administration time and the back and forth with the client. When we first started out we learnt the hard. Administration can easily eat up several hours if not more of your time.
Learn from your mistakes. Just because you set your fixed prices earlier on it doesn’t mean you cannot change them. Be confident in your approach and trust your instinct. Sadly there will always be someone out there who doesn’t value your work. They aren’t worth bothering with and it’s okay to say no.
What about pricing in terms of a retainer?
Retainers are proving more and more popular especially with the likes of Virtual Assistants, Consultants, advertising, marketing and so on. Not only does it help with cash flow because you are paid in advance it also helps the client. The usual rule with a retainer is you give them a discount for booking blocks of time. Personally, as a business owner, I prefer to know my monthly costs so having someone on a retainer is much more favourable than an hourly rate.
When it comes to pricing don’t compare your employed hourly rate to your current business model?
This is a common mistake a lot of freelancers make starting out but companies aren’t immune to it either. Think about all the overheads you will have. It isn’t just your time it’s about factoring in WIFI cost, insurance, heat, electric, legal advice, accounting and so much more. If you are starting out and unsure of some of the unexpected costs have a read of our blog “start-ups where do you start and what are your obligations?”
Breakdown your pricing model
We believe that are 6 important elements to break this down into:
1) The cost to produce the raw product or service.
2) How much profit do you need? This isn’t about what you want. Its about point number 1 but combining it with the time it takes to produce the product or service.
3) Look at your competitors but tailor it to what you have to offer. What makes you different? What makes you better?
4) Positioning – understand your target audience. Are you going for families who might not have as much of a disposal income compared to a businessman or women with no kids. This should factor into your overall pricing.
5) Make a profit – take number 2 above and add on amount to cover this. If you don’t make a profit you cannot grow your business.
And last by no means least:
6) Know when to throw in the towel. If the numbers don’t add up increase your price or look for another idea. Yes, it’s a harsh thing to say but it goes back to one of our original questions. Why did you start out in business? The number one answer is always going to be to make money.
If you need further advice on pricing we are more than happy to have a discussion with you. We pride ourselves on being supporters of small business and we want you to succeed. So if you do want to chat do drop us a message via our contact form.
If you are looking for more useful advice why not join our Facebook Group Business Advice & Start Ups.