Price setting is one of the trickiest things to get right in your business.
What price is the right price? How much do people expect to pay? What is everyone else charging?
There’s a risk that by making your price too high you will put people off and price yourself out of the market. Potential clients could go to cheaper competitors instead.
But there’s a bigger risk in underpricing. If your price is too low then you could actually be losing money. Which means that you are paying your customers to buy from you! That’s not the way it’s meant to work, is it?
There’s a lot of talk about valuing yourself and charging what you’re worth. Which is all very well and good. I support charging a higher price for a premium product, expertise or personalised service.
But I don’t believe that your self worth is tied to the price you charge. You shouldn’t charge a motza just to tell the world that you’re ‘worth it’.
On the other side of the coin, I don’t believe you should reduce your fee because you *think* it’s going to be too expensive for your client or potential customer. It’s not up to you to decide what someone else can afford to pay.
So what should you be charging? How do you know? What’s the best way to make sure that your price isn’t ‘too nice’ (too cheap) or not nice enough (and everyone just walks on by).
The first thing is to establish what your Break Even point is. This is the amount it is costing you to make your product or provide your service. You should include the cost of any materials that go into the product including your time, and for those of you whose time IS the product then make sure you know exactly how much of your time goes into it. Then you need to add in a portion of the business overheads. Things like your rent, electricity, and the phone and internet. Admin wages and stationery. Insurance. All the expenses that you can’t allocate directly to a product or service, also known as fixed costs.
You need to know your Break Even point so that you can make sure that you are covering your costs. You won’t last in business if you’re not at least breaking even. You can do it for a while. You might even have a strategy of having a loss leader product to increase your market share, but you need to be very, very careful if you do this and I don’t recommend it.
Once you’ve got your Break Even point you can add in your profit margin. How much profit do you want to make? This is the return on your investment for being in business. You’re not doing it as a charity after all. There’s a lot easier ways to earn a living!
When you are setting your price you need to consider all of these things. Intuition and gut feel are all very good but you need some solid numbers to make sure you are keeping our head above water and actually making a profit.
If you want to learn more about the Break Even point and price setting then you can! My course – The Numbers That Matter – will go into detail with step by step instructions and examples. It launches next week and in just 7 days you will learn which numbers matter, how to work them out, and what to do with them once you’ve got them. Break Even point is the number two number that matters in your business. (You can check out the Number one number here.)
I hope you can join me so I can help you work out ‘what price’.