Setting your price for either products or services can be a challenging task. Let’s start by recognizing what prospective customers really want, no matter if you’re selling services or products. Think of it as a triangle with “Quality” at the top, and the two other points being “A Deal” and “Fast/Convenient.” If you’re smart Quality is never up for negotiation. You can eliminate either one of the two bottom features to make a sale. So, if your buyer wants it overnight, the price goes up. If he or she wants “A Deal” they can’t get it fast or delivered. Trying to give them all three can be the road to ruin as a small business.
Startups often think they can get into the game by charging the least for their product or service. This is a losing strategy. Notice the point on the triangle doesn’t say “cheap.” It says “A Deal” for a reason. Customers are suspicious if you are the cheapest, but they love a deal or a sale.
There are many factors in determining what to charge.
1. What Are Your Competitors Charging? This is not always easy to determine, but a little industrial espionage can result in a lot of interesting answers. Look for their ads, check out their website, talk to former employees (always a font of information), or simply call them and act like a prospect.
2. What Does It Cost to Manufacture Your Product? Take into consideration the cost of parts and labor, fabrication, and delivery. There are often hidden costs such as licensing, research and development, design, and sales costs. That will bring you to break even. Then determine how much you want to make on each unit.
3. Determine Your Strategy. One strategy is to price your product a little over the break-even point and rely on the volume of items you will be able to sell. Another strategy is to price your product substantially higher than the break-even point so that every sale would reap some substantial rewards. One strategy you see all the time for hot new items is to start high to capture the early adaptors who will buy at any price, then slowly come down for those in the market who wait. Each strategy will require different tactics.
4. Consider the Time Element. If you’re selling your services, consider the amount of time that your selling price is covering. You would be smart to think of your services as “products” and break your assistance into packages. A project is a package. Retainers are monthly packages. Think through the number of hours on each package (and let your client know the boundaries). What do you want to be paid per hour? Keep track of your hours (Quickbooks as the capacity to do this), if for no other reason than to report to your client. Be careful here not to sell yourself as an hourly worker.
5. What Will the Market Allow? This, of course, has everything to do with determining who your market is. Do you have credentials to support your prices? Does the value of the work that you provide support your prices? Do you have social proof to support the prices and the fact that your services are good services?
6. Is There Room for Negotiation? Some companies are selling the same services at one low price, and for three or four times that to a different buyer whose expectations (and budget resources) are different. If you’re a startup, you may raise your prices over time as you get more confident. Some sales acumen is helpful. You might be surprised what you can get if you know how to sell and when to keep your mouth shut.
Vicki Garcia is the Co-Founder of Veteran Entrepreneurs Today (V.E.T.) & President of Marketing Impressions. Email her at firstname.lastname@example.org, register for free coaching at https://www.surveymonkey.com/r/veteransinbiz . Join us on our Meetup at www.veteransinbiz.com