Setting prices is a great equalizer in the world of entrepreneurship.
Whether you’re just starting out with your first mini-offering, or have been around the business block a few times, trying to pinpoint exactly what your rate should be can feel an awful lot like playing pin the tail on the donkey.
You’re rather blind. Pretty clumsy. And more than a little fearful that you’re going to miss the mark entirely and have a room full of kids laugh at you. (Or maybe that was just my birthday party experience…)
Even if those awkward, clumsy feelings return each time we set out to price our products or services, there’s a way to minimize the disorientation, and confidently pin on that price tag.
Here are 5 questions you need to ask yourself in order to set spot on pricing.
Question 1: Am I making a profit?
If you’ve been toying with a specific price for a while, it’s a good idea to break out the calculator and double check that you’re not only breaking even. (Or worse, selling at a loss.)
Take into account the cost of any materials, your time, and general overhead expenses (that wifi isn’t free!). Then, add on your profit margin to ensure that you can pay yourself a proper salary, beef up your savings, and reinvest in your business. Just barely scraping by isn’t an option.
Question 2: What kind of client will this price attract?
Pricing is strongly linked to your branding and the potential clients that will come your way.
Charge bargain basement prices…and you’ll have a steady stream of clients who are looking for discounts, deals, and steals. If you’ve branded yourself as a luxury, or prestige offering, set a premium price. Recently gone through a re-brand and upped your game when it comes to imagery and copywriting? A corresponding price bump is a great way to ensure a consistent message to potential clients.
Question 3: Am I undercutting the competition?
Diving into a bit of market research and seeing what other businesses with similar products and services are charging can be a revealing exercise. You may be under-pricing yourself and not even realize it.
If your experience, skills and branding mean that you’re priced at the low end of that competitive spectrum, so be it. But avoid setting a lowball price in hopes of winning customers away from the other guys – it may work in the short term, but won’t provide the sustainable revenue you need to thrive.
Question 4: What benefit will my client experience?
A good rule of thumb in setting your prices is that the investment needs to reflect the reward.
Are you able to get your client a 50% boost in revenue? 1000 subscribers? A toddler that will sleep through the night? Those all have a real value to your clients, and your price needs to reflect that.
Set your rate too high, and the return on investment just isn’t worth it for customers. Set your rate too low, and things start to smell fishy. Would you trust someone who was offering ‘the secret to a 6-figure launch’ for only $9.99? Nope. Neither would I.
Question 5: Would I pay this much?
Ah. The ultimate in gut checks for your pricing. You’re in a unique position to judge the value of the product or service you’re offering. You have the insider scoop on absolutely everything that went into its creation. The time, experience, trial and error, and amazing results from beta testing.
With all of this insider data, would you pay the sticker price and feel that you were getting away with underpaying (think: IKEA commercials and the urge to yell “Start the car!”), or would you feel confident that you were making a solid investment?
Some of these questions may be easier to answer than others, but think of it this way: With each one you tackle, you’re lifting that blindfold a bit more. You’re being spun in a circle less and less. And that means you’ll be able to go forth, confidently, boldly, and stick that new price tag right where it belongs.
ABOUT THE AUTHOR:
Devon Smiley is a Negotiation Consultant for ambitious entrepreneurs who are ready to stop taking what they can get, and start asking for what they deserve.
Devon’s mission is to make sure that you’re maximizing your earnings, signing fair deals, and keeping as much of that hard-earned money in your pocket as possible. To get you off and running, she’s created Price Like A Pro, a free video training series to help you kiss undercharging goodbye... for good.