Pricing in business

  • Pricing in business
  • Try Value Pricing
  • Earning the most possible

Michael Godsmark,

May 15, 2016

Pricing in business is an emotive subject for a lot of people. One person’s cheap is another person’s expensive.

How do you price your service or products in your business? 

This is a question that is often asked to us, and it’s not an easy question to answer.

In this blog we’ll give our thoughts in getting started and trying to get it right.

Where do you start?

A lot of new business owners will have come from a job in the same industry and be looking to undercut competitors as their overheads are generally lower.

Whilst this can be a great way to win quick business and grow your business rapidly, it can also be a good way to kill it with negative cash flow when you need to grow.

And if you then need to put prices up in the future you could be at risk of alienating customers unless you provide a significantly better offering.

Service Industry Pricing

Let’s start with pricing in the service industry. This could be more difficult to price than a product selling businesses, especially as you’re paying for knowledge and not a tangible product.

How much is your time worth? This is what you’re traditionally telling people when you price a service job, a good place to start.

You can ask yourself questions such as –

  • How much do you need to earn a day/week/month/year to have the same/better lifestyle you have now after expenses and tax? Once you know that figure, you can work backwards in terms of time you need to work to price your hourly / day rate.
    E.G. Say you want £40,000 after corporation tax and want to work 40 weeks / year, 5 days / week. So you need £50,000 before tax and you have £20,000 of expenses. So you need to turnover £70,000 per year to make £40,000. How does that translate into a day rate? £70,000 / 40 weeks / 5 days = £350 / day.
  • What are others charging in your industry? Are there agencies you can speak to? Or are there online forums where you can see day rates and charge accordingly?
  • What did your old charge rate be in your previous place of work?

I would say that’s traditional pricing.

However, there are now businesses who aim to price a more profitable way – value pricing.  

Here the questions to ask are a little different –

  • How much value are you adding to your customer’s business? Is your project going to save them a certain amount of time or money? Or will it increase their income? If so can you price as a percentage of those amounts?
  • What do they want? Find out what they want to achieve as a result of their project. Can you put together a price which is based on getting the project completed as opposed to hourly / day rate.

Value pricing is a huge topic, and if you’re really interested have a read on Andy Bounds website and check out his Tuesday Tips emails.

Product pricing

If you’re selling an existing product which others are selling then, you may be limited by the amount you can charge.

The internet is a wonderful tool, but it allows customers to quickly check a range of websites when shopping and generally go for the cheapest one.

However, there could be some ways to offer more if you’re in that industry –

  • Can you offer something extra which no-one else is? Free postage / a free E-book / Follow up information / deals if they buy more than one or a range of items?
  • Can you increase your margins by buying your product cheaper?
  • Can you manufacture your own?
  • Can you change supplier?
  • Build trust with your customers so they buy from you even if you may not be the cheapest.

Across all pricing

Think about the benefits you add, not what you do (from Andy Bounds). People aren’t interested in what you do. They want what you or product cause.

Like what you read? Why not book an appointment with us to see how we can help your business price more effectively.

Author Photo

About The Author

Michael is an enthusiastic and cheerful individual who, when not hard at work, enjoys mountain biking, cooking curry and travelling to new places.

   @https://twitter.com/WoodvilleAcc

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