Setting your prices is crucial in determining the success of your business.
If your prices are too low, you may make some customers very happy for a while, but if you aren’t making a profit, you’ll go out of business eventually. If your prices are too high, it could be hard to make sales, leading to exactly the same result.
Prices just right? Well, hello Goldilocks! Everything fits, you make money, clients are happy, and you stay in business, getting to fulfil the “why” that made you start a business in the first place.
The problem is, pricing is both simple and complicated. Simple, because you just need to charge enough so that you make more money than you spend. Complicated, because when you set prices you need to look at (and understand) your business accounts, consider your marketing, and deal with your own mindset.
Let’s start where it’s straightforward:
Working with your accounts is one of the easier parts of setting your prices.
If rational numbers don’t interact well with your brain, keep asking for a referral to an accountant or bookkeeper who can not only keep your accounts straight, but explain them to you in a way that you can understand.
You will know you are doing pricing right by your accounts when:
You know how many hours or items you need to sell every month in order to cover all your expenses.
Your cost price includes the expense of paying realistic wages or salary for the service provided.
Your business has a savings cushion to get it through seasonal dips in sales volume.
Any discounts you offer bring you something of value in return – either greater volume sold, or you are paid earlier than normal, or you’re turning old stock back into cash.
Making a profit is vital for any business. But making your accountant smile is not the only thing you need to consider when you set your prices.
Your pricing needs to work with your marketing as well.
Have you heard the business story about the jewellery store owner? She got sick of seeing the unsold items on a particular stand, and left a note on a Friday night saying “All of these: price/2”. She meant, halve these prices, but the retail assistant didn’t understand the way it was written, so he doubled the prices. The store owner came in on Monday to find all the items had sold at the new price level.
Pricing has a powerful impact on your sales and marketing, and not always in the ways you would expect.
Your main marketing/pricing considerations are:
That the quality message conveyed in your pricing is congruent with the rest of your marketing. If you are trying to convince buyers that you offer superior quality, your pricing should reflect that.
Where you place yourself in relation to your competitors: If you are many times more expensive, or many times less expensive than they are, then prepare to answer extra questions as to why that is so.
Don’t panic when a potential client says they can’t afford you. This is OK. Not everyone is your ideal client, and them not being able to pay you what you need to earn makes them not ideal. Depending on your market, you could consider developing a lower-cost product or service to cater for these clients. The key is, it must cost you less – you still need to make a profit.
If you find yourself needing to raise your prices significantly, then maybe this can be done alongside a change in marketing to reflect your higher quality / greater level of experience. You could re-focus your business to work with fewer, higher-quality clients, who pay you more.
All the logic in the world, provided by both your accounts and your marketing strategy, will not help if your mindset is telling you that you can’t charge more.
I’m almost sure you can already think of at least three reasons why your business can’t charge more right now. Even though you can see it makes sense for everyone else to charge more. And, you can see why an outsider might suggest that you charge more, but you just can’t.
I really understand your reasons from the inside out. I know, because I bet I came up with the exact same reasons when I was told I needed to charge more. It’s not a good time right now, is it? And what if I lose clients because I charge more? I’ll be even worse off! Plus, I just need to get some more experience / extra qualifications – then I’ll feel I can charge more.
None of these reasons hold up. Because, as good as they sound, they’re fake. it’s our fears that stop us putting prices up. The reasons we come up with are just so we don’t have to say out loud that we’re basing a business decision on that terrible feeling in our stomachs that if we charge more, people won’t do business with us – or even like us.
What worked for me in this situation was journaling. Write out all the reasons you can’t raise prices, without judgement. Put it to one side. Re-read. It’s easier to be clear about what’s a real consideration, and what’s an exaggerated fear of rejection when the words are out of your head and on paper.
Your accounts, your marketing and your journal – together they will tell you what to do when you review your pricing.
But when should you review your pricing?
If it’s more than two years since your last pricing review.
If you find yourself full of resentment – for the work you do, for customers who have the audacity to complain, for your suppliers who put their prices up – resentment is a sign that you’re feeling undervalued.
You’re the business owner. Time to fix that.
You can find out more about how Sarah helps her clients here: https://www.relatingtomoney.co.nz/about-sarah/