Chapter Eight
How to Price Your Service or Product
Knowing what price to set on a service or product is sometimes difficult, and if you start out with one price and then need to change it, this could cause you to lose customers. Getting it as close to right to start with will save you a lot of headaches.
This doesn't mean you won't be raising your prices over the years. Everyone has to do that because materials and fuel and everything else go up too. So a cost of living and manufacturing expense may have to be adjusted at times.
When I first started writing I did set my prices too low but I felt like I should not up the price on my customers right away, so here is what I did. For the customers I had already quoted a price, I told them that price was good for three more months.
This gave the client a chance to purchase more product or services now while the price is lower, and a chance to get used to the idea. If they love your product or services they will not want to change when you raise the price. I've only lost one customer doing this. If you lose one, don't worry, because there are plenty more fish in the sea!
Any new prospects that came in I would give the new higher price right away because they didn't know some clients were paying less. That helped me to get my prices where they needed to be for all my different writing services.
Pricing a service – This one is relatively easy because you usually don't have much expense that would be involved. If you are doing a service from home that doesn't require anymore equipment than what you already have, you need to merely figure up what you want to make per hour for your time.
Now, I'm not advocating you have an hourly mentality when it comes to working at home, but it certainly can help you set a price.
If you know you don't want to spend your time working for less than $15 per hour, figure up how long it will take you to provide your service and multiply that times $15. If your business is making e-book covers for authors, and you know you can make one in 45 minutes, you would still use the $15.
Never quote anything below at least an hour's worth of work. Why? It's just not worth the time if you don't, that's why. If you are going to have to stop what you are doing to perform a service then it's worth at least an hour of your time.
Pricing a Product – This one is a little more complex because if you are making the product yourself, you must consider what the materials cost you, postage cost, fuel cost, time involved in making, etc.
All kinds of things need to be considered because your time is worth something as well, not just the end product.
Maybe you make hair bows to sell to several little boutiques and need to set a price on them. You of course will have many types of ribbons and accessories that go on the bow, plus glue, clips, etc. First add a little percentage to the materials, and then add in your time. If you see you can buy $20 worth of materials that were shipped to your home, and you can make 6 bows out of that material, here is how you would set a price.
Materials $20 plus 15% for time spent purchasing or going to get them yourself five hours of your time to make the six bows.
$20.00 plus $2.40 for 15% mark-up and $75 for 5 hours ($15 hours) equals $97.40. You need to sell each bow for at least $8.11. Now it's obvious that most people aren't going to pay $8.11 for a hair bow, so you can see how important pricing can be. In fact you should figure out if your product can even be sold for a price that will make you a profit.
Many retailers today buy from other countries and pay mere pennies for items. This means your product must be something they can't get anywhere else and must be made of high quality.
This kind of pricing falls into cost-based pricing. There is also customer-based pricing where your product is based on customer demand or need for the product. If your bows light up and sing Christmas carols during the Christmas season you may be very much in demand and get $8 a bow easily.
Again, put pen and paper together and figure out what you need to do. I know I've told you to make several lists and figure this and that out but it's the only way to see right before you what will work and what won't.
Also remember when you are figuring a price for your product to include any other overhead you might have such as contract labor, equipment needed to work with, etc.
Other factors to consider in your pricing are the discounts you will sometimes be offering. You want the normal price to be good enough to make up for the times when you offer your product for less. For example you may use coupon books, holiday specials, or even buy one get one free promotions.
You make less during these promotions but they usually bring in more business to you in the end and are something every business owner should consider.