THE PRICE YOU ASK OTHERS TO PAY
A question I get asked surprisingly often – from sole traders, start ups and established business owners – is ‘how much should I be charging?’
Now that might seem unusual – that people don’t know the value of their work in the marketplace. But then lots of us work within self contained bubbles, and competition between businesses can sometimes mean that information about what’s “normal” for any given sector can be difficult to come by.
Pricing is tricky. Most people start from working out the cost of providing their product/service (including overheads) and adding a profit margin on top.
This is not a bad starting point, but it doesn’t take into account two important factors. 1. What price customers are prepared to pay for your product (given availability, competition and a range of other factors, often beyond your control) and 2. What value is delivered by your product to your customers. Sometimes this can greatly outweigh the price you put on it.
For many, it’s all too hard and they end up simply guessing.
Still, you can undertake some market research to help guide you in price setting. A formal market research project delivered by trained professionals is often outside the budget of most small businesses, but there are a few easy and cheap steps you can take in lieu of that.
- Seek out information on what others in similar businesses charge. This need not mean resorting to industrial espionage. Just note down others’ prices when you get an indication of them in the market – from either the businesses themselves or their customers. Keep a record of them for easy reference.
- Conduct an online survey of your customers, asking them about their expectations of price. Take care to design your questions carefully though and take what people say they’d be willing to pay with a grain of salt!
- Where possible, become a customer yourself. Purchase similar products/services to yours in the cause of research (this gives you a good chance to compare your service levels to others too). Or consider devising a ‘secret shopper’ style exercise.
- Undertake some sensitivity testing. What happens if you move your prices up and down a small amount (say 5% either way)? Particularly interesting if you find, as others have, that you can increase your prices without experiencing resistance from your customers.
- Once you’ve chosen your prices, have confidence in them. There will always be people who charge less and those who charge more. If you’re confident you’re providing value for a fair price, then turn you can worry less about what others charge and turn attention to selling your services.
If you’ve got issues in your business you don’t seem to be able to get on top of, why not get in touch? Not only do we provide a full suite of bookkeeping and tax services here at Generate, but we’re also able to help with business coaching, strategy workshops, business plans and much more. You name the problem and I’m sure we can help.