One of the toughest things you have to do as an entrepreneur is put a price on the product or service you are offering.
But it’s also the step that makes you an actual entrepreneur and not just a hobbyist. Putting a stake in the ground and saying publicly, “my stuff is worth X” makes it all real.
In reality, your stuff is worth what the market is willing to pay you, but you still need to establish the baseline value you place on your own services or products.
And you may need to re-evaluate that price from time to time.
Pricing your services – where to start
If you are a solo entrepreneur, you’re basically selling your own time, which is a finite commodity. Think about how many clients or projects you can physically support at any point in time, and how much you’d have to charge to keep your business going (and keep you fed, clothed, and housed).
Know your costs/expenses – Do you rent office space? Use a virtual assistant? What software and hardware are you using? Do you travel to meet clients? Make sure you have a good handle on your monthly expenses as a baseline for any pricing exercise.
Research the market – Who is your typical customer? How big is your niche? Look for online data that will give you a picture of how big your particular market is, and how big it will be in the next few years. Imagine you’re on Shark Tank and Mr. Wonderful is asking how he’s going to get his money back.
Research your competitors – Look around and try to find out what your competitors are charging for the same service or product. You don’t need to match it, just be aware of it because your potential customers will certainly be aware of market prices. Be aware of who your competitors are, as well. Don’t compare your pricing to the Ferrari if your business is more in the Volvo lane.
Price evaluation – at least semi-annually
Listen to your prospects, and do some testing – If you consistently get price pushback from prospective customers who you believe are in your target audience, take note. Consider exactly what they’re saying…are they telling you that you haven’t demonstrated your value, or are they saying that your competitor has a drastically lower fee for a similar service?
How are you going to scale – Hopefully your semi-annual evaluation will have to address growth (if you’re being successful). You’ll need to plan for adding partners, consultants, or staff if you’re selling time. You’ll need to ensure that you have developer, creative, or manufacturing capacity if you’re selling a product. Don’t get caught short if you have a sudden surge in demand.
Be willing to pivot – Right from the start, be willing to shift your pricing strategy if necessary. Flexibility in terms of payment options, discounts, invoicing, and terms will mean you can work with a wider variety of customers. You don’t need to be a doormat, but as a small business you have the flexibility to adapt quickly (which is more difficult for your larger competitors).
Price strategy – be confident
Once you’ve established your prices, be confident and unapologetic about them. Yes, you can be flexible on payment terms, but stick to your guns on the actual prices. Don’t be intimidated by customers who ask about special discounts or freebies. Refusing to work for free doesn’t make you a bad friend; it only makes you a good business owner. That applies to major projects as well as “can I pick your brain” meet-ups.
What are your best tips for setting prices?
Featured image via Flickr CC: Dennis Wong