Build your pricing strategy for sales of products and services.

A number of smaller companies and entrepreneurs carry out an inappropriate way of prices calculating of their products and thus committing errors in the economic management of their business. This erroneous initial consideration is that the ratio of total costs and revenues over a longer period of time is not monitored.

This erroneous initial consideration is that the ratio of total costs and revenues over a longer period of time is not monitored. The entrepreneur is satisfied with reaching the initial margin for their products or services. But is this margin sufficient to cover all the costs that the company has? This is a major, often neglected question, whose consequences are usually received by the company in a trap of insufficient operating cash flow and, if the situation is not solved, lead to a company crash.

Setting prices in business is an important activity and is not as primitive as it might seem at first glance.  Unfortunately, when we dive a little more, we find that the problem is more complex.  Not all costs have the same character and behave the same way. 

So how much should I charge for my products and services?  This is a question of many not only start-up entrepreneurs.

Too little or too much may ultimately have the same result: 

  • difficult customer acquisition,
  • poor cashflow,
  • inoperative business 
  • doubts about your work and abilities.

We will progressively address this issue in this section of our site. And you'll see that this discipline will give a pretty good start at the beginning.

You should realize, that price is as much of a product or service feature as is colour, customer service, or return policy. Fully understand your cost is the starting place for any pricing strategy. But understanding your marketplace and your customers is the key to your ongoing and continual success.

 

But if you need to set prices right away and you don't want to deal with theories and how to do it, see a quick and temporary solution you can take advantage of this practical guide, which you can also set your pricing strategy fair to you and also your Customers:

6 steps to set the price of products and services

Where to start?

1. Find out who else does the same thing as you do

Trade journals and professional organizations often publish baseline rates and fees for national, regional and local markets. Asking other entrepreneurs is also helpful, though some may be justifiably reluctant to discuss their fees with potential competitors. Be sure to learn the story behind these prices. Blindly charging the same as someone else may be inappropriate for your business or customers.

2. Set a Reasonable initial condition

Many first-time entrepreneurs begin with an hourly rate based in part on what a company would pay someone with comparable skills to do the same kind of work in-house. As you gain experience, you’ll be able to augment your hourly rate with flat per-project fees based on the amount of work, supplies and other resources required. 

3. Be sure to include special Extra costs

Your hourly rate should include a percentage to cover the cost of employer-paid fringe benefits (e.g., Social Security, health insurance), and your overhead costs (e.g., office space, equipment, supplies, vehicles, business development and research time). You may also include a profit percentage for funding capital investments or future growth and surcharges for time-sensitive assignments or those that require specialty work and extra resources.

4. Appreciate Customer Loyalty

As you develop “regular” customers, consider offering discounts in return for a larger volume of work.  Make sure this discount does not cut into your profit margin and that the advantage of staying busy doesn’t limit your ability to attract or serve other customers.

5. Ensure Proper Communication

Be sure your customer is aware of your rates and surcharges before doing any work. If the customer wants to negotiate, carefully weigh the pros and cons of a lower fee.  Is this a one-time project or the start of a long-term relationship with this customer? Will you still be able to cover your costs of doing business? 

6. Keep Your Prices Up to Date

Don’t set your price schedule in stone. Monitor inflation, industry trends and your own costs to preserve your profit and marketability. Some variables that influence your prices may not become apparent until after you’ve been in business for some time. A free, objective evaluation of your pricing strategy from the small business experts at SCORE is also a great way to ensure that the value you provide justifies the compensation you receive.

And that's it. Didn't you understand something, or do you have any idea how to do some of the things in this manual? After all, you'll have to read the little theory. We will gradually devote to this in the following chapters.