How To Price Your Product Or Service
Being a business owner is tough and it’s not for the weak. You are faced with challenges every minute of every day just waiting for the day where it will finally become easier! One challenge you have to face is how to price your product or service.
Starting a business is very much like having your first child.
It is so exciting, almost exhilarating that you have this new baby, yet on the other hand it is full of challenges. You never imagined it would be so hard, yet you know this will pass. What you learn as your child grows is that those challenges never really go away, they just change.
Owning your own business is very similar to that experience. As your business grows you will work through those challenges learning how to solve problems faster, be a better leader and ultimately have a profitable business.
So, let’s jump right in and discuss the first challenge.
The first challenge dealing with money that all new business owners deal with is: How to price your product or service.
This is always a really tough one. We can tell you from our experience that ALL and we mean ALL of our clients over the years realize that their prices are too low and that they have to be increased. We get scared that if our prices are too high then people will not purchase our products and services. What eventually occurs – is you get mad that you are working so hard, not getting paid much and therefore you raise your prices.
We want to avoid the stress that comes with this decision. The goal is to price your products/services fairly for the customer, but also you. You need to get paid and get paid well.
Let’s start by making a few lists:
- The first list being, what are your costs to produce the product or service that your customers will be purchasing.
- Your second list will be: What do your competitors charge and what does that price include?
- The third list is a little different, make a list of what sets you apart from the competition? This list will help you determine what value your product or service has to offer. For example: Your product/service may be the best quality out there by a landslide. This helps you internally justify charging more.
- Lastly, jot down what you would like to charge for the product or service.
Review all of the lists and ask yourself the following questions:
1. Are your costs of producing the product/service less than what your competitors charge? Are your costs of producing the product/service less than what you would ideally like to charge?
We will assume they are because if you have made it to this point then you’ve done your research and know that you have a profitable business in front of you. If your cost to produce the product/service is greater than what you can charge, you do not have a viable business and you will need to go back to the drawing board.
2. After reviewing your lists, do you feel comfortable charging your ideal price for the product/service?
The point of this exercise was to find what price you would be most comfortable charging. Chances are it will be lower than what you will eventually want to charge, but you want to feel confident in the price you are selling your product or service. People will know if you aren’t confident in your pricing and will question whether to buy your product or service.
So, let’s simplify all of this. Just pick a price. Do not think about it anymore. Know that you will scale the price with time and experience. Evaluate your pricing every month. If that is too often, then once a quarter.
You need to make sure that the price is above the cost of producing that product/service. If you are below cost, you would be paying people to take your product/service and even if it is at cost, you would be giving it away for free. We have seen business owners that want to just get their product out there, but from our experience this just makes it harder to charge what you really should be charging.
Remember – Price is perception all day long.