Figuring out how much to charge is a big learning curve for any business owner. The answer to how to approach it will fluctuate as circumstances and markets change. It is important to revisit the question throughout the lifecycle of your business.
There is no magic formula
All businesses are unique, with an individual offering of products and services. Before you set your pricing, It’s important to look at the whole picture. This will help to ensure you are being strategic and not just following trends.
Gather the data
To get started, you need to gather as much information as possible. Block out some time to sit down with your business data and strategies. Pricing is essentially figuring out where your products and services are positioned in the market. So keep your business strategies top of mind. It doesn’t have to be a confusing exercise. Just grab a coffee and get started.
Here are the first steps to consider:
- Record all the costs involved in production. Make sure you include indirect costs, such as assets, insurances, licenses and legal costs.
- Now that you have your outlay, consider your current profit margin or what margin you require. Remember there is a difference between net and gross profit margins. Net margins take all operating costs into account.
- Do your competitor research. Be thorough in understanding the market and what others are charging for the same service or product or variations of this. What unique selling points (USPs) does your business have that allow you to vary your prices?
- Think about your offerings. What extra benefits or offerings do you have that can affect your pricing? Think about cheap and no-frills on one end of the spectrum, versus high-end premium products. Can you create different products at different prices to cater to different segments of the market?
Don’t forget to check in on your pricing regularly to make sure you’re keeping up with your customers and staying ahead of the game.