Setting prices for products or services can be a very emotive process when you run your own business. It relies on confidence in your costings and your own abilities, an understanding of the market and your competitors and a strategy.
Self-doubt and imposter syndrome can also lead you to under quote in case it seems too greedy. Does this sound familiar?
But there are some parts of the costing process that you can make easier immediately. You only have to sit down once to build a costing template, thinking through all the potential costs, to avoid restricting your profit or even making a loss because you haven’t taken into account all your costs.
Obviously, there is software out there that can help you, but it doesn’t have to be that complicated. You can set up a list of your potential costs in a spreadsheet format that includes a total at the bottom and the ability to add a % markup which you can reuse for each sale.
Each time you are asked to quote you create a copy of the template and fill in the costs that need to be considered for that sale, then add your markup and your have your price!
That sounds easy enough doesn’t it, but I know that some business owners find this area of running their business extremely hard. In that case, taking advice or getting assistance in this area would be the best way forward, so that you can be sure your business is making the profit it needs to be a success.
Below are some of the areas you need to take into account in your costing template, but these will vary depending on whether you sell a service or product, so not all of these will be relevant to your business
Direct costs o materials o your time o production o sub-contractors o logistics
Indirect costs o overheads (the regular bills you pay that can’t be attached to a particular sale and are necessary to keep your business afloat) o advertising/marketing o administrative expenses
By analysing these costs, you can work out the minimum price required to break even and add on your % markup.
If you sell packages or have fixed price products, you only need to set up one costing template for each package or product and you have your pricing structure. Obviously, it’s important to review these costings regularly to take into account rising costs but that’s a lot easier than starting from scratch isn’t it?
So, what else do you need to think about?
Once you have your price you should then consider attributes that may add value to your product/service and therefore increase your selling price.
Value: The perceived value of a product or service. If your customers perceive the offering as unique, high quality, or solving a specific problem, you can often justify higher prices.
Competitor analysis: If similar products or services are available in the market, you may need to consider pricing your offerings competitively, but this doesn’t mean discounting to beat the competitor. It’s important to understand whether the products on offer are like for like with yours. Can you justify your higher price because your product/service is better quality?
Supply/Demand: If there is a high demand for your product/service but availability is low you can increase your price to reflect that shortage. However, the same applies if there is low demand and supply is plentiful. Then your price will need to be lower to attract customers, in which case maybe this isn’t a good market to sell into and you should consider removing this product from your offering.
There are so many factors that need to be considered when you are pricing your services/products but by using a formulaic approach you can take away the emotion and become more confident in setting your pricing and achieving your worth.
If this is something that sends a chill down your spine, that is where I can step in. We can work through the process of costing your products and services together.
I will ask the questions that will draw out the answers you need to achieve a pricing structure you can be confident in. Confidence in your pricing is so important as, if you don’t sound confident your potential clients won’t be confident that you are charging the right price either.