At the beginning of your new business journey, or in a challenging economy like now, setting your pricing will be one headache you will experience the second, which can be more migraine than headache, is to find the confidence to ask for the price you have set.
There are many strategies to setting price:-
- Look at your competition and charge less
- Look at the competition and offer more for the same price
- For service businesses you can look at what you need to earn a month – divide by the hours you have available and there you have an hourly rate. Remember here that it is the service deliverable hours not the ones spent on everything else to do with running a business ie accounts, marketing, business planning.
- For products look at cost to you, add a percentage for overheads and a percentage for profit.
There are many ways to work out what you feel is the right price to charge. Your Accountant should be able to help you with this.
Once you have decided on a price take a moment and have a think about how you feel about it. This is really important as you are going to be the one asking for it.
If it feels too cheap you will feel under valued and resentful about what you are doing for your clients for, in your head, not enough money.
If it feels too expensive you will sound apologetic when you are asked what it is, sending out signals that you are not committed to it is up for negotiation.
Interestingly depending on what you’ve done previously this can influence you too. If you came from a big corporate organisation charging £1000 for your services as a trainer then going out on your own and charging £600, even if it’s because your overheads are lower therefore you can, may feel too cheap. Like wise if you’ve been working for £20 as a beautician and are not on your own and charging £50 per hour may feel too much.
So have a good think about who your target client is, what you can do to solve their problem or address their needs and make sure you feel confident and comfortable that for £xxx you can make a difference.
Once you’re happy that your price is justifiable by you then it’s time to face your audience and tell them all about what you can do for them and how it will benefit them leaving price out of the conversation until the right time.
I once worked for a Scots man, Charles, and ran his recruitment business. From day one he taught me to never negotiate on price. It really didn’t matter, how big the client, how far from target we were or what carrot they were dangling in terms of how many staff they’d take or how long they would use us for the answer to negotiate the price was always no. What Charles would do however was help the team to over come the objections so that the client saw the value in using us and we won the business that way. In some ways it was easy for me as I had no option but to get better and understand what clients needed, how I could provide it and to overcome their objections because Charles didn’t allow me not to.
In our own businesses it’s so much easier to justify why we should reduce that price to ourselves ie I need a sale, they won’t use me otherwise, they’ll give me more business if I do this first one cheaper. The reasons you’ll come up with will go on and on. Find yourselves a Charles someone to hold you responsible for getting the price you decided at the beginning was fair. As you get more confident in your pricing you will have less need to use these skills as talking about what you charge becomes less daunting.
It may not always be the competition you are up against it might be a friend helping out (wow have I seen some rubbish websites done by ‘a mate’) or it might be them doing it themselves or getting a member of their team to do it. If this is the objection be prepared with just how much getting it wrong could cost them.
I’ll leave you with this quote that I love from the best in his field. Paul Neal “Red” Adair (June 18, 1915 – August 7, 2004) was an American oil well firefighter. He became notable as an innovator in the highly specialized and hazardous profession of extinguishing and capping oil well blowouts, both land-based and offshore. NO one else could do it as well as he did but he charged a much higher fee than others. The problem is that you only have one chance to cap a blazing oil well and if you get it wrong it could be disastrous. People paid him because he didn’t get it wrong!