Pricing your products and services is a big part of running a small business that often gets overlooked or not carried out carefully enough You know what you can do and you know there’s a market for it, but do you know how much you can charge without scaring customers away? Here are some tips to help you boost your profit margin.
Check Out the Competition
Give some of your competitors a call (using a fake name might help) and find out their rates. Make a comparison table with the info you gather. If price isn’t a huge deal in your industry, aim for the average of your competitors’ prices. If price matters a lot, be bold—include your table in your marketing and set your prices to beat everyone on the list. But remember, you don’t always need to be the cheapest option.
Sometimes, you might even gain an edge by charging more than others for similar products. People often think higher prices mean better quality. For example, some jewellery priced at thousands of dollars is only worth a few hundred, but people pay for the status of owning something expensive.
Easy Pricing Formula: Cost + Time + Margin
For a more straightforward approach to pricing, follow this formula:
- Calculate Your Costs: Include materials and overheads like electricity, advertising, and legal fees. Overestimate a bit but not too much.
- Factor in Your Time: Figure out how many hours it takes to produce a product and set a satisfactory hourly rate for yourself. Start with minimum wage and adjust from there. Think about what you’d pay an employee if you expanded.
- Add a Margin: Typically, this should be about 30-50% of your combined cost and time. This helps with expansion, taxes, and any unexpected expenses.
Don’t Get Too Attached
If you’ve put a lot of effort into your product, it’s easy to feel the market price doesn’t reflect its true value. Avoid this trap—pricing too high out of emotional attachment will likely hurt your sales. Accept the market value and price your products accordingly.
Be Ready to Negotiate
Some customers will want to haggle over prices. Play along and make it seem like they’re getting a great deal. Just know your minimum acceptable price beforehand and stick to it.
By following these tips, you can confidently set your prices and maximize your small business’s profit potential.