When you're an entrepreneur, it can be hard to know what to charge.
Is there a magical equation that tells you what your price point should be?
Unfortunately, the answer isn't black and white.
However, whether you're in the business of selling products or services, there are some pricing strategies that can help you be sure you're charging what's fair for your customers--and what's fair to you.
1. Estimate your Salary
A simple way to get a ballpark figure of what someone in your industry might make on an annual basis is to peruse the local job listings. From there, you can see what the average salary is within the type of role you'd line up with. This will give you an idea of the regional price range you might fall within.
Of course, you'll also need to factor in all of the extras that aren't covered by a traditional employer: Health care, retirement, etc. This will help ensure you aren't scaring away customers with an outlandish pricing structure but that you're earning enough comparatively, too.
2. Test your Rate
If you find that the rate you're charging isn't enough based on the actual work you're doing once you get into a project, consider discussing this with your client or implementing a rate increase with your next new client. In the beginning, there will be some trial and error.
Especially for freelancers, pricing strategies can evolve on a regular basis in response to supply and demand. Just be sure you're not getting in over your head. If you do, see if you can work out a compromise with your client.
3. Cost-led Pricing
Within the product business, one of the more common pricing strategies is to calculate the price of your item by adding the variable costs (cost of manufacturing/delivering product), fixed expenses (things like the shipping materials you need to deliver the product to the consumer), and a slight margin--typically anywhere from 5-50 percent.
Luxury items are an exception to the rule, as they traditionally have an extreme mark-up. But for the average business owner, you'll also need to determine your margin based on the average budget of your target customer for the type of product you're selling.
4. Bundling your Services
Bundling a group of services or products is another way to showcase value for customers--and is an effective pricing strategy that can help increase volume. Consider what you can package as a bundle within your business, present it as a helpful toolkit, and you may find that the increased volume decreases your overhead cost per unit.
For example: Say you're a hair salon owner that is having a hard time selling a certain shampoo. Assembling a new bundle that includes the shampoo and a few other low-cost items, you can repackage the product, sell it at a slightly higher price, and include a sign that says something like, 'A $60 value!' You're getting more product sold, and the client sees how the items can work together for a better experience (and gets a slight discount.)
5. Ask your Peers
Do your homework and ask fellow entrepreneurs within your field what they're charging for their services. This works best with people you already have a long-standing relationship with--maybe a mentor, a teacher, etc.
There's a way to approach the subject tactfully. Make sure the person you're asking isn't a direct competitor, and work your way up to the topic while you're picking their brain for more general expertise. No need to be sneaky about it; just explain your dilemma and ask for their advice. You might not always get a number, but you can get some insight into more general pricing strategies.
Learn as You Go
Knowing how to price your offerings is an on-going learning experience. Test out different tactics with your customers and see what works best within your unique business. Don't be afraid to charge less or more--just be sure to keep your changes from being too drastic.
What other pricing strategies would you recommend?
