As a business owner, it’s really one of the toughest questions you’ll have to face. But it demands an answer. An answer that, truthfully, no one except yourself can provide. That being said, there are definitely some practical pricing guidelines that can help you set a fee that won’t sell yourself short nor be unrealistically high.
There’s no strict formula or calculation, but there are a few things you must always take into account: your expenses, the labor/effort you put in, a profit margin, the market price / competitors’ rates, and the value that your product or services offers.
Considering those factors, think about and do the following:
- Are you going to charge a fixed fee or by the hour? This usually depends on whether you’re selling a product or a service, but it’s important that when determining this, to consider you overhead/operational expenses per hour worked / per job / per product produced.
- Review your competitors’ prices to see what the market will bear. Remember that rates vary according to geography, experience levels and/or age of business. Don’t price lower to gain an advantage. Good clients―the kind you want to attract―will make a hiring/buying decision based on value.
- Know your potential customers very well. Does your target market include students or bargain hunters who are sensitive to high prices? Are you aiming for high-level executives or rich retirees? That will determine how high or low you go.
- Consider all your other expenses and personal situation: medical insurance, sick days, vacation periods, taxes, telephone & Internet bills, legal & accounting fees, marketing/advertising expenses, and employees’ salaries (if applicable).
- No matter what, you do need to make a profit. So keep in mind your profit margin. What is the worth of your product/service, the value or your expertise, experience and education? You also need to plan for business growth.
- You have to be comfortable with your fees. Is it sufficient yet reasonable? Can you justify it to your clients? Remember that too low of a price is not only demotivating and dangerous for your financial well-being, but it also gives people the impression that you service is of poor quality.
Also keep in mind:
- Research is very important. You can find about market/competitive prices though professional organizations and trade associations for your fields.
- Your price will greatly depend on the demand for your product or service.
- As time passes and you gain a reputation or become successful, you’ll raise your prices accordingly. Remember this especially if you sign a contract with an existing customer.
- There are times when you can make special allowances with your price: for long-term client relationships, if you’re just starting out in the industry or sector, or if you want to work with a high-profile client that can bring you plenty of business.
- According to Cameron Foote, you need to charge four to five more times more than what you want to end up with. That sounds like a lot but if you review the above carefully, you’ll see that it isn’t.