One of the most common questions I am asked when dealing with start-ups is “How much should I charge?”
There are a lot of online resources that you can use to gain some knowledge, but finally the decision rests with YOU.
One common thread is that the large majority of people are unwilling to charge as much as perceived competitors. Their sole strategy is to discount their way into the hearts and minds of their prospective clients. I am here to suggest that discounting is the absolute last resort. Remember, discounting your price may give the impression that you are prepared to discount the value you create. For some people that may not apply, however the vast majority of business people I meet are trying to create as much value as possible for their clients.
That led me to 5 Steps to Set Your Business Price Point.
1. Understand the value that your impact can bring to your client.
When a potential client is looking to you to solve a problem, they are simply asking you to provide a solution for a gap that they have recognised. Alternatively, you may have recognised a gap in your potential client’s circumstances for which you have a solution.
There is always a way to understand the impact your value can bring to your client. It doesn’t always have to be a simple financial solution. Time, health, relationships and emotions are all aspects where you can create a value for your client. Once you understand what it is your client is seeking, you can understand a bit more about their values, and what your solution can bring for them.
2. What do your competitors charge?
It won’t take a lot of research to find out a little bit more about competitors in your field. When you are selling a simple product, it is an easy thing to compare with others.
When you are selling a service, it is interesting to know what your competitors charge, if only to provide you with a base from where you start.
I urge you not to get hung up on this point, as it is for information only.
3. Be creative and prepared to make deals.
If you are selling products, people are familiar with discounts for bulk purchases. There are also other ways that you can construct deals, such as ongoing routine monthly supply or some other similar arrangement. For those with online products, this is a very common process.
For those with a service, think about the possibility of front-end, back-end and tiered pricing options.
4. Get a grip on the metrics.
It doesn’t matter what stage your business may be at currently. Understanding your metrics is critical to success.
If you are supplying products, you need to be able to identify overhead costs, labour costs, delivery costs, salaries and benefits.
Service businesses are in a similar situation. Understanding the overheads, labour costs, administrative costs, and service delivery costs leads to the cost of business. Your service investment pricing needs to take all of these into account.
No matter what business, profit margin is the lifeblood. Adding a consistent profit or mark-up to your product or service base costs at least keeps you in front of the game. Once you have an idea of your base costs, you can continue to measure them.
Even people in a base start-up phase need to provide a relatively intelligent estimate of what the they are aiming to achieve. Those who do not – often end up in the 70-80% of businesses who fail in the first 3 years.
5. Price yourself higher than you think you are worth.
Trust me, you are worth it. You worked hard for it, you educated yourself and have taken a risk. You want to create the greatest value for your potential customers and clients.
People never remember the price of things. They only ever remember how your product or service made them feel.
One of my great lessons as a coach was to dump the price list and ask a client to pay what they felt was appropriate for the value I created for them. I was pleasantly surprised that they deposited precisely double what I expected.
In my observation, the majority of people (myself included 😊) start out at a point that is often too low. Their initial thought is to get an opportunity to create value for their customer or client, yet they sacrifice themselves by coming in too low. The outcome may mean that they do not have enough money to provide consistent ongoing value. That inevitably leads to cuts-backs and often a reduction in quality. When you can’t deliver what you promise, it is a slippery slope towards business failure.
On the flip-side, especially if you are in a highly competitive area, sometimes people will only be driven by price. If that is the case, you may miss out on a contract. There are only 2 courses of action that can follow. Firstly, you can accept it and move on. Secondly, you can negotiate. Whatever your action, it is truly about creating value, and ensuring that you create value for yourself and your potential client. If they don’t see the value, then they are not your client!