I know we can’t place a value on our lives – after all life is priceless, but we can place a value on our time and what we do with it. If your best friend asks you to run an errand on their behalf and you have a job to complete, which one will you rather pay attention to? Will you prefer to delegate the errand and pay attention to your work or run the errand for friendship’s sake?
The way we view and use our time is an indication of what we think our time is worth. I’m privileged to work with a number of wonderful people via Business First Steps with great business ideas. I noticed that some are sceptical to charge a reasonable price for their products and services, even though they put a lot of time and effort into it.
The first thing you need to decide if you want to start a business is, are you are going to be a profit or non-profit making organisation? A non-profit organisation means you inject proceeds from the business back into the business.
If you want to earn profit from your business then stop operating like a social enterprise or not-for-profit organisation. If your business is not breaking even but you spend endless hours trying to meet customers’ demand, then you need to go back to the drawing board and revisit your operation, prices and business values.
Below are some questions to help you with your pricing strategy:
- What are my business values?
- What is the objective of my business, product or service?
- What are my competitors charging?
- What pricing strategy do I want to employ?
- Do I want to undercut them, match them or charge much more and offer a better service?
- How much time do I invest in each order?
- What is the cost of sales?
- What other variable costs do I have to take account of?
- How much do I want to earn per hour?
- What are my personal expenses and how much do I need each month?
- How much can I earn from my business each month and still pay business expenses including taxes?
- What are my monthly fixed costs?
- What is my profit margin on each product/service?
The list is not exhaustive but you can use it as a starting point to develop your prices. If your product is of low value, you must take into consideration that you need to sell more to make a profit. If you are a sole trader do you have the capacity to produce the quantity required? Will you need more resources and more staff? If you take on premises, can your business sustain the costs?
It can be quite tricky to price services, a lot of people tend to use the ‘pay per hour’ model i.e. they charge based on the number of hours it takes them to complete a job. So if they charge £25 per hour and each job takes 4 hours to complete that means they charge £100 per job. Watch out! If you charge £1000 for your service and you do not get a single client in 4 months, you need to revisit the plan.
These are part of the steps you need to take to run a viable business that brings you joy and credits your account with a monthly income too. Get your pricing and product offering right then you are on your way to enjoy the proceeds from a successful business.
I wish you good success
Need help with your pricing strategy? Why not get the eBook ‘Pricing Your Service for Maximum Profit’ and checklist via our Resource page. At Business First Steps, we help you bring your business idea to life and support you through the early stages of your business journey. Visit our website Business First Steps and find us on Facebook.