How do I price my new product/service?

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This is a hard question. One I’ve struggled with myself and I know many others have too.  There are so many factors that would have some bearing on what you SHOULD and what you CAN charge.  To keep this simple let’s first ignore the external stuff such as your competitors’ pricing and market forces. Let’s focus on the things that are (kind of ) within your control talking about what your pricing SHOULD do?

Your pricing SHOULD:

Compensate yourself for your time

The point is to be rewarded for your effort. Start by recording how long it takes you to deliver the service. Maybe if you’re a Hairdresser/Consultants/Graphics designers you will already have a clear rate per hour which will make up the crux of what they do.

Workout your daily rate. Is this an amount you can live comfortably on? Is it sustainable? If it’s taking you 15 hrs to handmake a necklace or 50 hours to build a website, if your current pricing finds yourself working for equivalent of £3.50/hr this is not a viable business. You either have to get more efficient at delivering or raise your prices to reflect your time. Don’t forget set up costs – the session may take an hour but if you’ve got to prep or deliver a follow up that’s taking your time too reflect this in your pricing

 

Cover the expenses of your materials (direct costs)

As well as your time – at the risk of stating the obvious your incoming has to be higher than the outgoing. People fail to take everything into account. If you’re selling in online – this should be everything from the costs of printing the delivery labels, tissue paper packaging, postage etc. That is the true cost. If you’re in service – costs of travel to the client, do you give out on-boarding materials (fancy brochure, welcome packs) – include all these costs in the price of delivering the service.

So what do you do on expenses that are difficult or attribute or are part of delivering your service or it maybe something you invested time and effort in upfront (build a software or run a platform) and now using to leverage an income?  You want to come up with a “contribution” to these costs. Each unit of product/service you sell makes a contribution to this overall cost. I will deal with this in a later post so look out.

From here you can then consider the volumes you hope to achieve and test whether you can cover these expenses.

 

Offer a proposition that’s simple and easy to understand.

“Buy 4 now but pay before 10am and get 10% discount on the lowest price item”.

You maybe tempted to load up your price list with a thousand options so you never miss that sale and have a price point for everyone, but it only ends up confusing. Make your propositions simple and transparent. Limit your packages to 4 maximum – 3 would be great. If it’s retail create price bands and bunch similar products under that price point.

 

Take into account how often you want to see your customer.

What’s the average spend per customer, how many transactions do you expect. Whilst this depends on your range of products think about the next time you want to see a repeat purchase. You may have the chance to sell a large amount at a value added price but does this means you won’t see the customer for another 12 months? Your business now relies heavily on attracting new customers (expensive). This is a large topic to cover – but the key takeaways are around not giving away too much initial value and finding opportunities to upsell, cross sell or resell to your existing customer base.

 

In conclusion…

Price positioning is a science, no one is in a better position to find the sweet spot than you are. As technology, competition and your company grows – pricing is something you will revisit many times across your company’s lifetime. Monitor your competition, speak to your existing customer base and reward yourself properly.

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