I guess nearly every women in business has asked this question at some point – how do you decide what to charge, when you don’t know where to start?
I know it’s a big issue because I get questions about it every week on my Facebook page www.facebook.com/thegirlsmeanbusiness so let me help. Let me share what I teach my clients about pricing so you can get a better feel for where to start and how to make a profit.
Pricing Starts With Knowing Your Costs
It’s the only place to start, because if you don’t know what it costs you to make a product or provide a service, how can you possibly know if you are covering your costs at all, let alone making a profit?
I know lots of women who really struggle with this side of things because they are scared of the numbers , so if you feel this way you’re definitely not alone. However, I’m not letting you off the hook. Time to put on your big girl knickers and get brave, face the numbers and get some clarity in your business
What Are The Costs In Your Business?
In my business my costs are heat/light, electricity, my equipment (computers/phones, tablets and microphone for podcasts), my support team (website lady, designer, business manager, virtual assistant), my coach and advertising, specifically Facebook advertising.
I don’t have premises, so no rent, rates or taxes to pay there.
Now look at YOUR business. What do you pay out every month or every year?
Some will be direct costs, meaning they are directly related to producing a product or service. These might be:
- Staff time
- Your time
- Travel / fuel
- An hourly venue rate if you hire premises by the hour
Other costs like
- vehicles …
and other things that you need to pay but that are not directly related to producing a product or delivering service still need factoring in. Speak to your accountant about how best to do this for your business but a simple way would be to work out roughly what this would cost you in a year (as best you can) then divide it by 12 so you know roughly how much per month you need to make before you have sold anything. These are your overheads.
Ok, you are doing brilliantly so far. It’s not so scary after all, and even if you don’t have exact figures an educated guess based on the information you have is much better than doing nothing.
Now you need to work out what it costs you to produce your product or service.
If it’s a handbag, you’ll have fabric, components such as the clasp, thread and your time.
If it’s an hour of coaching, you need to factor in your preparation time (there’s always some, even if it’s just revisiting the notes from the last session) and the time delivering the coaching/training plus travel time/costs.
How Do I Price My Time?
If you’re a maker/crafter/artist or you sell your time you’re going to have to put a price on it. Where do you start? Well a good place to start is by looking at jobs – if you were going to take a job what is the minimum hourly rate you would be comfortable with? £10 per hour? £20 per hour?
Whatever you’d accept, start pricing your time in YOUR business the same way. As you get more confidence you can increase your hourly rate but if you’ve been pricing bad
ly and not factoring it in up until you, this is a good place to start.
What often happens is that we do this and then get a HUGE shock because when we price our products properly with a decent hourly rate, the price they OUGHT to be nearly makes us fall off our chair. It’s way higher than we’ve been charging. And that sets off the mind monkeys in hour head who tell us no-one will ever pay that, who do we think we are?
The trouble is, if you’ve been under-pricing, which is usually the case then you’re kidding yourself. You’re not running a business; you’ve got an expensive hobby. That’s a wake-up call, if ever you needed one.
You Can’t Un-know It
Once you know what it really costs you to make or deliver your product or service, you can’t un-know it, which means you HAVE to put up your prices.
Now before you go and hide in the cupboard with a tub of Ben & Jerry’s, don’t despair. You’ve already made a huge leap by getting clear on your costs – loads of small business owners never get that far. Stop worrying that nobody will ever pay your new prices and start working on your Super Customer (there’s a BLOG here all about that – if this is all new to you, I suggest you pop over and read it now).
Why Am I Telling You All This?
Because YOU can do this in YOUR business. It’s not rocket science, it’s getting clear on who the best fit person is for your business, your Super Customer and then spending time getting inside her head and figuring out why she should care about you and how to get her attention.
If you’re struggling, brainstorm with a friend. Even better, ask a Super Customer.
Why Super Customers Are Important In Your Pricing
OK now you understand the concept of Super Customers, let me explain why they are so important in your pricing.
You know now that you have to price properly which means your prices will be higher than the hobbyists and the uninformed out there – rest assured they are losing money.
You also know who your Super Customer is. Now you need to work out why they will happily pay more for what you sell.
Let’s look at some examples:
When Chloe was a baby I spent a FORTUNE on prams, on all sorts of equipment (most of which I never used) on clothes – I always got the best I could afford, even when money was tight.
These days I don’t value that stuff at all. If you GAVE me a £1000 buggy I would have no use for it. I might give it away or sell it but I certainly wouldn’t keep it or value it because it’s not important to me now.
I have a 9 month old Jack Russell /Chihuahua cross puppy called Meg. Rather than buying cheap dog food, I always get really good quality dog food from places like Lily’s Kitchen. It’s NOT cheap, it’s blummin expensive but it’s important to me to get good quality because I’ve committed to looking after this little dog for life. I value her welfare. Where Meg is concerned, money isn’t really an issue. Before I had a dog, you could have given me £1000 worth of Lily’s Kitchen dogfood and I would not have valued it.
The things I value change over time, depending on my needs. When something is important to me, I spend as much as I can afford on it. Price is less of an issue than VALUE – how well it meets my needs.
Do you see? You just need to work out who VALUES you and price becomes a secondary issue.
When have YOU spent MORE on something (even when it was a real financial stretch) because it was IMPORTANT to you?
What do YOUR Super Customers value about your products / services and why?
- What will make them happily spend more with you?
- Is it your quality?
- Your service?
- What is it about what you sell that makes people come to you rather than other (possibly more convenient) suppliers?
I know I’m making you do lots of thinking but I promise it’s for the right reasons because when you know what it costs you to produce something AND you know you have people out there who will happily pay the right price (i.e. a price that easily covers your costs and gives you a profit) then it’s happy days.
How NOT To Price Your Products or Services
Have you ever wondered how your competitors price their products/services, especially if they are way lower than yours?
Well, what usually happens is they look around to see what everyone else is charging, then they figure out where they are in the pecking order (better than HER, not been around as long as HER) and they pitch their price somewhere in between, usually at the bottom end.
The trouble is, everyone they are looking to for pricing usually set THEIR prices the same way. So nobody has costed out their time, they are all running at a loss and the only way they can drive more business is to drop their prices AGAIN, making even more of a loss.
Do you see now why that is a bad idea?
If you price this way – by looking around and deciding where you fit in the pecking order, rather than looking at where you ADD VALUE – there is nothing that makes you stand out. People don’t look at your value, they are shopping around on price. When your only selling point is price, the only way you can compete with other businesses is to CUT your prices. And if you haven’t been costing properly, it won’t be long before you are PAYING customers to take your stock. Hmmm.
When you price your products or services like that, based on what everyone else is charging, you are not factoring in your ME factor. You’re not looking at your Super Customers. You’re not looking at value.
So, that’s a long answer to a short question but it’s important you understand this. Start pricing properly NOW, look at where you add value, look at why your Super Customers come to YOU, love you and value you (read my blog if you’re struggling) and before you know it your attitude to pricing will have turned on its head. You won’t care what others are charging, you will be able to charge a good price and make a good profit and your Super Customers will be happy as clams.
Try it, I think you’ll like it.
Love, Claire xx
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Claire Mitchell is a best-selling author of the Awesome Marketing Planner and founder of The Girls Mean Business, a mum and business owner. She has been featured in Marie-Claire, The Guardian, Closer Magazine, Essentials, The Huffington Post and on the BBC.