Setting the right price for your products or services can leave you scratching your head. Whether you’re a freelancer, a small business owner, or someone launching a new product, figuring out how much to charge is an important step.
After all, you don’t want to ask for too much or you could scare off potential customers. But set your prices too low and you run the risk of undervaluing your work or struggling to make a profit. We’ve put together a few practical tips to help you find that sweet spot.
Do you know how much your business costs?
First things first for price setting; know what your costs are. They’re sometimes split into two broad categories:
- Direct costs, which relate directly to the products or services you supply and the sales that you make, such as materials, production, shipping
- Indirect costs which relate to the business overall, like rent, utilities, marketing
Listing everything in detail will help you keep track of where the money goes, so you can work out how much you need coming in to cover everything.
Monitoring your expenses like this can also be rather revealing though – so be honest! It’s a bit like the time we tracked all those occasional ‘oh go on then’ biscuits and realised it wasn’t the office ghost eating them.
Fortunately, you can use accounting software to help you monitor your business expenses, so get familiar with any financial reporting tools which are included.
How much will your customers pay?
Who are you selling to? Because the next step in deciding your pricing structure is to research your target market, and what others are charging for similar products or services. This doesn’t mean you should price exactly the same as your competitors, but it will give you a ballpark figure to work to.
If you’re charging significantly more, you need to offer added value that justifies the higher price. If you’re charging less, check that you’re not selling yourself short. It’s a good idea to look at your competitors’ pricing models for what they include and how they market their products. And obviously remember that you’re better than them.
Which leads us to…
Don’t underestimate your value
What is it that makes your product or service unique? Perhaps you use higher quality materials, offer exceptional customer service, or offer a really authentic style that can’t be found anywhere else.
Your unique selling points (USPs) can justify you charging something of a premium. Don’t be afraid to price based on the value you provide, rather than just the cost. If your work saves customers time, improves their life, or offers something they can’t get elsewhere, that’s worth paying for.
It’s also important to think about your time and expertise. Your time is a resource just like everything else in the business, but being able to do something quickly doesn’t necessarily mean it has less value if that efficiency is the result of the ten years’ experience which came before it.
Shout about your value!
How you present your pricing can make a big difference. Your unique selling points are important – but what value do they have for your clients?
Use testimonials, case studies, social media posts and examples of your work to build trust and showcase the quality you deliver.
Working out a pricing model
Choosing the right pricing model is another important step. Here are a few common ones:
Hourly rate
Many freelancers and consultants will charge an hourly rate for their time. Work out a fair hourly rate by considering how much your annual salary would need to be, the number of billable hours you can realistically work, and your business expenses.
Project-based pricing
Instead of charging by the hour, you set a flat fee for a project. This can be more attractive to clients because they know upfront what they’ll be paying.
Cost-plus pricing
This is where you add a standard markup to your costs. For example, if it costs you £30 to make a product, you might sell it for £40 so you make a profit.
Value-based pricing
Value-based pricing involves charging your customer based on the perceived value of your product or service. This is more common with unique or high-end offerings where the customer is paying for the benefit received rather than the cost to produce.
Is it appropriate to offer flexible pricing?
Consider having some flexibility in your pricing. Offering discounts for bulk purchases, loyalty rewards for repeat customers, or special promotions can incentivise sales without permanently lowering your prices. Be careful though – if you’re discounting all the time, customers may start to expect it and devalue your regular prices.
Re-visit your prices regularly
Time marches on – as do your costs, experience, and skillset, so setting your prices now doesn’t mean they’ll stay that way forever. Pricing is not a one-time decision but more of an ongoing process, so check regularly to see if they need adjusting.
Monitor your sales, get plenty of feedback, and be ready to make changes if needed. If you’re constantly booked up, you might be undercharging. If you’re struggling to attract clients, your prices might be too high – or you may need to change the way you communicate what you’re offering!
Most of all – do your homework!
Finding the right price for your products or services involves a mix of understanding your costs, researching the market, and assessing the unique value you provide. It’s a bit of a balancing act, requiring adjustments and tweaking along the way.
Keep your customer in mind, stay flexible and don’t be afraid to assert the value of your work. With careful consideration (and an enormous amount of confidence, because running a business is scary) you’ll find the pricing strategy that works best for you.
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