ESTABLISHING QUALITY PRICING IS NOT FOR THE FAINT OF HEART

Posted by Tisha Tolar on April 10, 2008

One of the hardest aspects of business for a lot of entrepreneurs is the subject of pricing. Perhaps if you have worked for awhile in the industry in which you have chosen for your profession, you may have a better idea of how to formulate prices to remain competitive. But for many who are starting from scratch, trying to place an accurate value on your product is difficult. It is especially hard when you need to place a price on the value of your time or natural talent.

As your business moves forward and you become more confident in yourself and your service or product, you will begin to understand how things work and what amount of income you need to generate to stay alive. So, in a sense, it will begin to get easier. However, in the beginning, correctly pricing your service or merchandise is serious business – a decision that could make or break you before you even had a chance to grow.

Here are some tips to help guide you in the right direction for pricing your start-up services or merchandise.

DO YOUR RESEARCH = First and foremost, do research on your competition. Have a good understanding what is out there and what you are up against. Often, there will be a wide range of rates, depending on the service or product and the company selling it. Look for the average range and compare it to what your business is offering.

OFFER PROMOTIONAL PRICING – Start up businesses can help increase interest by offering special pricing deals or introductory rates for new customers or clients for a limited time. You should gauge what other business are using and consider how low your price can feasibly be lowered to get a good price for the promotional deal.

DO NOT SELL YOURSELF SHORT – While it may seem like a smart idea to be the lowest priced place in town but the reality of that is you are risking credibility with potential customers who may worry that the quality of work is reflected in the bargain price. You also risk pigeonholing yourself by having low prices customers will expect all of the time.

CONSIDER YOUR COST OF LIVING – While you may be used to getting a paycheck you can count on, as a business owner the theory of reliable income virtually goes out the window in the beginning. There are other factors you need to take into consideration as an independent proprietor. Your prices need to account for taxes, the cost of your business expenses, personal health insurance, your time, personal expenses, and any other financial matter for which you are responsible. You may think making $20 an hour is a great rate because you never made more than $15 as somebody’s employee. However, $20 won’t go as far as you may think as a business owner.

Again, as you get more comfortable in your position, you will have a better idea of what works and what doesn’t. It is a trial and error period during the start up phase and as long as you are paying attention to what is going on every step of the way, you will get to the point you no longer doubt your price structure. You will also reach a point where you will be able to establish financial expectations you must meet on a monthly, weekly, or daily basis to see an actual profit.

Remember to log any expense and every piece of income in a clear and concise manner so you will always have a reference point when you need one. Incorporating a pricing structure in your initial plan will also aid in assuring you are on target with your accounting expectations.