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  |  Starting a business  |  Marketing & Launch  |  How to price your products or services
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How to price your products or services

by Priscilla Huff

moneyDeciding how to price your product or service is one of the most difficult tasks a home business owner must face. Many, especially women, tend to undercharge. Here are some guidelines to help you

  • Write a business plan to determine your operating expenses (overheads, labour and materials); tax and insurance costs; time spent on management, marketing and production; and the percentage you want to save for your pension. Keep accurate records to better analyse your time and expenses.

  • Use your business plan to determine a break-even analysis, when projected income equals costs. This figure will help you set your prices knowing that you must at least charge a certain amount to reach this point, and more than this to make a profit. There are great accounting software packages out there to help with this.

  • Ask yourself if your service or product will be sold to an exclusive market or mass-produced. Know what your customers are willing to pay and the value they place on your product or service. If your business is so busy that you cannot schedule any more work hours, it's time to raise your prices.

  • Decide on an annual income goal, but do not forget to factor in your taxes, overhead costs and your profit margin. Note: As a one-person business, it is impossible to work 2,000 hours per year, based on a 40-hour. working week, 50 weeks a year, with two weeks set aside for a holiday, as you will be involved in marketing and other business operations. This means that you will only be able to bill approximately 1,000 hours a year.

  • See if your industry has pricing guidelines. Some trade associations publish and sell rate guides.

  • Research and compare your prices to your competitors' and set them accordingly, though this does not mean you have to offer lower prices. Customers may be willing to pay more for personal attention, better quality or for your special niche. Pricing is actually concerned more with marketing, not what your service/product costs.

  • Analyse your competitors' services to see what they do not offer, and offer that as part of your business, e.g. free delivery and pick-up, estimates, discounts for referrals to other customers, etc.

  • Be flexible in pricing, because just as you market-test your product or service, you'll have to experiment with pricing as your business grows or your market changes.

  • Offer different prices and packages for your customers to choose from. Also, remember that the way you present your prices can influence sales. To state your rate at £30 an hour, clients may be hesitant to do business with you if they do not know how many hours will be involved. Instead, present an estimated total amount for the entire project (based on your hourly rate).

  • For products, be aware of the psychology of pricing, i.e. £3.99 sells better than £4.00.

    Pricing is based on an ongoing evaluation of the cost and time involved in running your business and meeting your customers' expectations. Look for ways to increase your profits by lowering your operating costs, but not at the expense of the quality your customers expect. Your prices signify the value of your product/service to your customer.

    Meeting with your accountant each quarter - especially in your home business' start-up years - is one of the wisest investments you can make. They can help you set realistic financial goals while helping insure your business will continue to be a profit-making venture.



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