Why is pricing such a taboo subject?
When starting out in business, pricing was one of my biggest struggles, in this week's article I share a few tips and some of the things I've learnt about pricing. Dig in!
Happy Monday Everyone!
This week's article is about the importance of creating a pricing strategy. Every business owner struggles with pricing. Last week, I explained why systems are necessary in business and today's article is a continuation of that. Here are a few tips and some of the things I've learnt about pricing.
“Pricing is 50% confidence in your own ability and 50% credibility of your ability to others.”
I struggled a lot with pricing when starting out mainly due to the fact that I believed I had to “pay my dues” before charging a “high price”. I also had to unlearn my view on money and stop seeing a price as too much, I still remember sending over my first four-figure invoice and how scared I was to hear back from the client. I'm more confident now because I understand that the customer is paying me to solve a problem for them. For example, if I am helping a customer rebrand their business, it is more costly for them not rebranding their business (losing out on potential clients) than the fee for my service.
It is important to have a pricing table to make sure you’re not giving prices out of thin air. You have to make sure your prices are uniform, you don’t want a situation where one client finds out you’re charging them way more than another client. Getting your pricing right early on is key. It is also important to get your pricing right to ensure that you do not undercharge, the cost of the input needs to be aligned with the output.
Different pricing models to consider:
Cost Plus Pricing - This is pricing your product or service based on the cost of production and adding a markup. There is no ideal markup but most businesses set a 50% markup to ensure they are making a profit. To determine your costs you need to figure out direct costs, indirect costs, and fixed costs. With cost-plus pricing, it means that you will be making a profit regardless. However, it could be extremely difficult to do cost-plus pricing when offering a service as you’re charging for your skills, time, and knowledge.
Competitors Pricing - It's important to know what your competitors are charging. There have been numerous occasions where I've found out what others in my industry are charging and that’s shown me that I'm leaving quite a bit of money on the table. You can find out what your competitors are charging through their websites, inquiring through talking to friends or associates in the same industry as you.
Value-Based Pricing - This is my favourite pricing model as I believe pricing is subjective. We have witnessed a portrait of a banana duct-taped to a wall sold for £92,000. With value-based pricing, you are pricing based on how much they are willing to pay for your expertise, service and how beneficial it will be for their business. Consider how much value your customer will be getting in return for example if you’re creating a website for a customer, they will be getting a huge amount of value and money from your service. Some businesses are even happy to pay for the more expensive service providers as it usually equates to greater value and service.
Pricing is an art form but very tricky. There’s no one size fits all solution, my best advice is to find out what prices are like in your industry, be clear on your customer audience to ensure they can afford your prices, and state your price confidently. Don’t worry if you lose a customer business due to your prices, they just aren’t your ideal clientele. Do not fall into the trap of thinking you need every customer to survive
You can make £100,000 as a business in several ways.
£100,000 = £10 product or service to 10,000 people
£100,000 = £100 product or service to 1000 people
£100,000 = £10,000 product or service to 10 people
In my experience, it’s still the same amount of work regardless of your price, you just need to make sure you have the right client base. Starting off, you often underprice your product or service but make sure you’re always working on setting the right price that you’re happy to do the work for and won’t feel cheated.
Wishing you all a great week! Feel free to reach out if you have any questions or want to talk a bit more.
Something interesting to read this week
Something interesting to listen to this week
I just released a new episode of Hustle Smart with child genius Joshua Bright, make sure you have a listen!