Many businesses, particularly those just starting out, struggle with the right price to put on their product or service. Do you undercut the competition and hope to attract more business? Are you selling yourself too cheap? Alternatively, are you too expensive for the market you are trying to compete in?
We all want to be paid what we are worth. Finding the right balance between profit and service is vital if you want to attract the right customers and, more importantly, keep them.
What are People Charging Already?
Whether you are offering a service like accountancy or painting and decorating, or a product like a new gadget, you need to do a significant amount of research and find out what your competitors are charging. This is far easier for physical products as you only have to look on sites like Amazon to find out what the average cost is.
With services and consultancies it is a little more complex and difficult to find the information you need. Take a look at Professional organisation sites and ask people you know, who have hired your particular service, what they paid. You also need to find out what is being provided for that cost and how much each added on service is valued.
Ensure when you are pricing your offering based on competitors that it is like for like, by that I mean; do they offer the same service or product? In the same way? With no added value components?
Is Under Pricing a Good Idea?
Often, the idea of setting a low price, especially for start-ups, is to get sales, develop a reputation and then be able to price a little higher once your brand has been established. Small businesses that offer a consultancy also do this to develop a customer base and build initial confidence.
The problem with selling a product well below your competitors just to get going is that consumers will then expect it at the same price from that moment on. There is evidence that pricing your product low from the start can set that price structure more firmly in the mind of the consumer so that it is more of a shock when the price reverts back to ‘normal’. You may also want to consider pricing yourself too low may result in increased difficulty selling your wares as your offer may seem ‘too good to be true’!
For those who provide services, the final price is often a negotiated settlement between what the customer has in mind to pay (or is able to pay) and the amount you are willing to offer the service for. Everyone looks for a good deal but there has to be a limit to what is acceptable and money may not be the only thing that decides whether you take on a new client. For instance, could you offer a more cost effective service if the customer puts a link up to your site on their pages? Can they recommend you to their contacts? These kind of referral relationships can add tremendous value to your business, but do make sure that the referee knows that the rate they get is not your usual fee.
Be Confident When Putting a Price on Your Work
As a business you are offering a service and you shouldn’t be intimidated or undervalue how much you are worth in that respect. Undervaluing yourself can also have negative connotations. There’s the well versed saying that you pay for what you get. Good customers are more likely to be wary of what you offer and may be less willing to engage if you are not charging the ‘right’ amount for your service.
Other things to consider when putting a price on your work are:
- What are the additional expenses? Do you need to travel to see your client? How much is that going to cost? Will you need to hire someone to do work to bring the project in on time?
- Don’t forget phone calls and research and any other cost other than the time it takes you to complete the project or service.
- What are you going to charge if the customer changes their mind and wants something slightly different? Have you worked out the rate for additional services to the one you originally agreed?
There’s no doubt that, whether you sell a product or service, you need to tailor your pricing to meet your worth. Too low and you might be selling yourself too cheaply, too high and you could be pricing yourself out of the market. Each market is different and there are very different suggestions for ‘luxury’ brands.
My final point about putting a price on your work; learn to value yourself. In the UK we are brought up to be modest, to not toot our own horn, not to brag… when you become a small business owner you need to blow your own trumpet, you need to (metaphorically) shout – look at what I can do! You need to have confidence in your products or services – if you don’t why would anyone else?