You’ve got a great service, developed the skills to sell it, and you’ve even picked a clever brand name that rolls right off the tongue!
Everything seems to be going swimmingly, until your first prospective client approaches.
They ask you to name a price, and…
You’ve got no idea what to charge.
No matter what, identifying a fair price point is tricky business. But when you’re a service-based professional, that challenge can feel astronomical.
And let’s be real… When we’re attaching a price tag to our time and the quality of work, it’s difficult to take the emotions out of it.
So how do you confidently determine the price, without recoiling in fear throughout the process?
Here’s what I recommend.
3 Tips as You Create a Business Pricing Model
1. Evaluate the Competitive Landscape
I can’t stress this one enough. Before you set a price, or make any pricing decisions, you need to figure out who your target customers are using as an alternative now and review competitor pricing.
If you don’t do any competitive analysis, you may end up naming an embarrassingly low number that brings your expertise into question.
Or, conversely, you could end up coming across as the marketing mastermind behind a glitzy, show-stopping website that offers no real value in return.
So, first things first, find out what other peoples selling similar products are charging. Then adjust the price of your products or services based on the following factors:
- Your specific industry knowledge
- The length of your experience
- Geographic differences
2. Understand Your Costs of Goods Sold
For non-service-based businesses, it’s essential to consider the Cost of Goods Sold in when establishing a price point.
But what do you do when your work costs you nothing more than your time (which is the most valuable commodity, of course)?
First, think about how much it would cost you if you were to outsource your work. Then earmark that number as your Cost of Goods Sold.
This will give you a good idea of whether or not your prices are in alignment with what’s fair, and whether you’re making a reasonable profit off the effort you’re putting in. You’ll be able to figure out your profit margin.
For example, say you’re a freelance marketer who’s trying to figure out what to charge for a logo design. If it would cost you $50 an hour to outsource the work to a creative, you’d have to charge the client more than that to see a profit.
3. Your Worth is Not What You Charge
If I can leave you with anything, it’s this:
Your price point is not synonymous with your worth.
It can be extremely easy to fall into the trap of self-deprecation when trying to identify a fair cost to your clients.
Throughout my career, I’ve heard it all…
“But If other lawyers are charging $700/hr, that must mean I’m at the bottom of the barrel!”
“I know some consultants are making six figures fresh out the gate, and I have 10 years of experience!”
If you do your research, adjust based on the variables mentioned in this post, and consider your long term goals, then you’ve done enough due diligence to charge fairly.
And that’s the best thing you can do to build a sustainable and profitable business.
What you’re worth will never be the same thing as what you charge, because what you charge is based on objective variables, like market factors or a project’s scope of work.
It may sound scary to put yourself out there and place a price tag on your services, but just remember, that number is a reflection of the market and industry at large — not a reflection of your personal or professional value.
If you or your small business need help maximizing your profits or understanding pricing, feel free to reach out to me.
Got it? Great! Now go put yourself out there!