I know far too many business owners who simply don’t know how to price their worth. When starting a business, it can be a challenge to figure out what your price point should be. Of course, we all want to get new clients and steady business, but most entrepreneurs aren’t looking at the full picture when they are determining their pricing structures. I see far too many creatives asking in Facebook groups how much others would pay for XYZ product/service and while that’s part of what goes into pricing, it’s not the only piece. You don’t want to undercut your market by not charging enough. And low prices with a lot of work is a surefire way to lead to burnout! Here’s how to make sure your pricing your worth.
Calculate your actual costs
Pricing for products is pretty straightforward – the cost of products x 2 = retail cost. But pricing for services can be a different beast. For service-based businesses, costs can be broken down into two categories – direct and indirect. Direct costs include any direct materials, labor, or manufacturing supplies. Indirect costs are things like rent, utilities, equipment and maintenance, insurance, marketing, advertising, etc. Adding these two together will give you your total costs.
Research your market
It’s actually a good thing to survey your market but not by asking what your potential clients will pay. The better way is to look at your competitors. What are your competitors charging for similar services? While this shouldn’t be the only thing you’re basing your pricing on, you should have an idea of what your competitors are charging. Keeping an eye on what others are charging can help you define what sets you apart in order to show the value of what working with you brings to clients.
Know your target audience
Get in-depth about who you are serving to narrow down your pricing structure. If you have a high-ticket item, but no one is biting, it might be because you’ve misidentified who your target audience is. Look at their needs, wants, income, family status, occupations, etc. to get a clear picture of who you are marketing to. This will help you determine how valuable your services are to your audience and how to best connect with them.
Price your TIME!
Your time matters! And it comes at a cost! Think about how much time it takes you to provide your services. Include things like prep time, customer service time, outreach and marketing, and, actual client time. The longer you spend on any given project, the more you should earn! Don’t forget to take into account how long you have been in the industry. As in most industries, the more experience you have, the more you can charge.
Figure out your profit margin
In case you need a refresher, profit margin = revenue – the cost of goods sold (COGS) or in the case of service-based businesses, your direct and indirect costs. Profit margins are the key to making a profit in your business. Profit margins vary by industry but typically 10% is pretty average. Consider your costs, the market, your perceived value, and your time invested to come up with a reasonable profit margin.
Download the FREE Pricing for Services checklist to make sure you’re accounting for all the important factors when it comes to setting up your pricing structure.