This can be such a sticking point for small business owners, especially women, but if you get this right then both you and your customers will be happy, and your business will fly!
So how do you know what to charge? Well there are several different methods you could use to price your products or services…
Charging what you’re worth
This method can be controversial, but here’s the thing, it’s not about what you’re worth as a person. It’s not about your confidence, experience, effort or time. It’s about what you’re worth to the other person, your customer.
What value are you giving them? …Is it more time, more money, more freedom, more confidence, better health? What impact is that going to have on their life? If it’s going to allow them to make more money consider how much that might be.
Charging what they’ll pay
This is where your market research comes in. What are the average prices in the market? What are your competitors charging? How much can your ideal customer(s) afford to pay for this product/service? And what sort of income do they have?
Also, what did your customers/potential customers say they were willing to pay in any research you’ve done? (Important note: asking people what they’re willing to pay is just a guide, you don’t need to set your prices to match that, especially if it doesn’t feel right to you or wouldn’t make you any profit!)
Charging what feels right
It needs to be enough so that you have money to live off, and not so much that you feel like you’re ripping anyone off or overcharging them.
PS. There’s no point in ignoring your gut instinct if you use another method for pricing but deep inside you’re not happy with it. If it helps, write down the amount you feel comfortable charging – without over-thinking it, even if you don’t use it. Most business advisers (especially if they come from a banking/financial background) would never say to do this, they would advise you to follow the ‘more sensible’ method below. However, we’re telling you now that this is your business, and most probably you’re the one doing the selling too, so it needs to be a price that you are comfortable with.
Charging to make a calculated profit
You can work out a pricing method based on the actual costs to make your product or service, plus a contribution towards ongoing costs to run the business (such as website & marketing costs, premises, equipment, general supplies), then factor in training costs and any other expenses such as travel.
Once you know how much money you need to make to cover these costs, you’ll be able to figure out how much money you need to make for the level of profit you want to achieve. Then you can play with the figures of how many of your product or service you’d need to sell at x price to cover all your costs.
Each month your running costs are £200 and you want to make £800 profit = £1000. It costs you £20 to make your product/deliver your service.
If you sell your product/service for £30 that gives you £10 extra over the cost of you producing/delivering it. To make the £1000 a month you need to cover your running costs and make the desired level of profit, you’d need to sell 100 of your product/service. But if you sold at £60 each, that would give you £40 extra and you’d only need to sell 25 of your product/service. At £220 each, you’d only need to sell 5.
You need to see what the most realistic price is for you to achieve, but you can play around with the figures until you find something that works.
Other pricing points to note…
Positioning & pricing
Whichever method you use to help you determine a good pricing point, you need to bear in mind your positioning and ensure that your pricing puts you in the right position in the market, and reflects the rest of your branding. Are you a Lidl or Waitrose, Primark or Debenhams, Ford or Ferrari?Pricing and positioning - are you a Lidl or Waitrose, Primark or Debenhams, Ford or Ferrari? Click To Tweet
Trial & error
Whichever way you work out the price, you’re not going to know if it works until you try. Sometimes you need to make a decision and run with it, get your products/services out there and see what happens.
The joy of being the boss means you can change the pricing structure at any time, or try something else you think might work better. It’s all about testing what works and what doesn’t!