For entrepreneurs, here's a topic that comes up again and again: pricing. Figuring out how to set (or adjust) what you charge for your products or services is a conundrum that just about every small-business owner faces.
Entrepreneurs selling a product like handmade jewellery or baked goods may be able to use a relatively straightforward mathematical formula along the lines of materials + overhead + time = price to determine their magic number. But for folks offering services – tax accountants, bookkeepers, social media consultants, brand strategists and graphic designers, for example – price-setting can be a little (or a lot) more challenging, especially when their “product” is less tangible than a delicious scone or sparkly earrings.
We've turned to some enterprising entrepreneurs to identify key pricing challenges – and, more importantly, to share some key strategies for solving the all-important pricing puzzle.
Let’s face it: Sometimes the biggest obstacle to charging a profit-worthy rate is you. We know it’s not easy mustering the personal and professional confidence to ask a competitive rate. When the benefits of your services are hard to quantify precisely, it can feel downright nerve-wracking to set high prices, even when they reflect the high value you provide. Natalie Cunha, a tax preparer in Northern California, recalls a mistake she made during her early days as a small business owner: “I was charging too little. I worked like crazy, people-pleaser style, and at the end of the day, I was frustrated, upset, discouraged, uninspired. It’s been a process of realizing that I need to make sure the price works for ME, too.”
Bruce Daniels, a social media strategist in the state of Washington, USA, regularly reminds himself it’s okay to charge full-price for his consulting services. “The whole object is to be profitable. We are likely better than we think we are, and we should never sell ourselves short.”
The takeaway? Acknowledge any discomfort you might feel about charging what you’re really worth – and then go ahead and do it. (Remember, you can always find a way to offer a discount if necessary, but negotiating up in price is virtually impossible.)
You can (and should) seriously boost your inner pricing confidence by doing some market analysis before you hang out your shingle. Operations specialist Jeffrey Trejos says the numbers you need may be just a click or two away. “A quick and easy way to check your prices vs. your competitors is to do a search … in Amazon and Google. Consider what type of customers you want to market to and what they will be willing to pay.”
For his part, Canadian entrepreneur Jeffrey P. Marson has his own approach to reaching and maintaining profitability: “Predict, Prepare and Produce is my motto,” he explains. “An important fact for my businesses was getting my numbers in line from the get-go. I feel the main reason small businesses fail is poor management of the numbers. Know where your break-even point is, and go from there!”
The takeaway? Whether you surf the Internet, crunch the numbers or simply talk to others in the industry, it pays (literally) to be informed about and aware of comparable market rates. After all, if you’re confident you’re pricing structure is fair and reasonable, chances are, your clients will be, too.
If you’re trying to decide whether hourly or “value” pricing is best for your biz, how about offering both? Many of our community members are as flexible as a pretzel when it comes to pricing. Consider this insight from Paul Edward Montador, an American baker in Illinois who’s on a mission to make the world’s greatest shortbread. “I use both [hourly and value pricing]. We charge per item (or by the case) for our product. If I’m teaching classes or working as contract caterer, then it’s by the hour. But it’s all agreed upfront, so there are no surprises at the end when presented with an invoice.”
For Michigan, USA-based investor Lori Sullivan, flexible-pricing makes good business sense. She suggests using “a combination … with an early valued price for a mini service that can be followed up with an increased hourly rate once [clients] see your value.”
Of course, not all products or services warrant flexible pricing. For labour intensive products like Cyndi Veres Gibson’s one-of-a-kind, handmade embroidery items, “value pricing or piece pricing is the easiest way to go. There is so much to consider that hourly pricing would prohibit sales.” In Seattle, US brand strategist Scott Michelson sticks with an hourly rate based on how long he thinks a project will take.
“I provide a range to make sure I’ve covered myself on any potential issues. If the client wants a direction change, I put in a change order to cover those costs.”
The takeaway? Consider channelling your inner yogi when it comes to setting a pricing structure. In some cases, flexible pricing can help you make a sale or win a new client, thereby securing future business. If a stricter approach to pricing makes sense, that’s okay, too. The bottom line? Set prices that support your bottom line.
Just as a worm wriggling on the end of a hook may entice a circling fish to bite, offering a discount or incentive may help lure prospective customers or clients to “bite” when it comes to your products or services. If you’re a fledgeling business owner, giving a one-time discount or introductory package deal may secure a new client or customer and, as a result, help you build your portfolio, boost sales and earn a rave review to share on your website and other marketing materials.
Michael Koral, a Canadian entrepreneur and co-founder of Needls.com, puts his own spin on this “lure ‘em in” strategy: “People who visit our website will see a live chat box, and they receive $50 in free advertising for simply saying hello. It prompts a dialogue between us and gives them more advertising budget to work this. That tactic has helped us quite a bit.”
On the other hand, it’s definitely not a good business decision to give away goods or services if it doesn’t benefit you in the long run. For example, while it’s tempting to offer a discount to friends and family, sometimes too much generosity can backfire. That’s what happened to Sonia Freer, a driving educator from Australia. “My challenge was pricing too low for 'mates’ rates' and leaving myself too short, barely covering my expenses and having nothing left to pay myself. I was working another two jobs to get by.” Fortunately, Sonia changed her ways – and her rates. She says, “I have started pricing correctly now and adding heaps of value so that my potential customers don't quibble on my prices!”
The takeaway? Sometimes it really pays to “give a little to get a little.” If incentive pricing helps you close a deal, go forth and discount – as long as you’re sure it’s a smart decision for the long-term.
We hope this roundup of insights, tips and strategies help you feel confident and informed about charging just the right rate for your offerings. On that note, we’ll leave you with a few more words of wisdom from another member of our community. Michael Merritt, a virtual assistant in London, shares this important reminder:
“When [people] see the value or understand the benefit of your product or service, not only do they seldom complain about the price being too high, they often walk away happy to have gotten it at the price the paid – and will even, on occasion, feel like they are taking advantage of you for having paid so little!”
Thanks, Michael. We couldn’t have said it better ourselves!
Before you go
How do you charge for your services? Do you charge what you're worth? Or do you think you should raise your pricing? Share you experiences below!
It's hard to find the sweet spot between charging what you're worth and what the market will bear. What strategies have you used to find the right price point for your goods and services?
Doing your research is always a good way of seeing if you're charging too much or too little for your services. When I first began blogging, I didn't know what prices I should be charging, I was very uneducated. I reached out to PR agencies and other people in the same field to gather information about appropriate pricing. Although seeking information off others isn't always tailored to your services, it's always a good way to get an insight into how you can structure your pricing.
@vickyT I saw that you're a sheep farmer here in the UK, that's amazing! How do you structure your pricing? I would also love to know more about what you do in the comments below! :)
I hope you're well! It was great to chat the other day. Your offices are in the most perfect location - very peaceful compared to the big city :smileylol:.
I wanted to know when it comes to pricing and charging your customers - do you have a strategy in place that you follow?
Our pricing structures are set by the markets on a weekly basis.
Each week is different and sometimes we bring them home - as price too low!
It is also weather dependent.
Was lovely to meet you too. I am glad that you enjoyed the west coast in Shoreham-By-Sea! Its very far removed from the hustle and bustle of London I am sure.
I do not get involved in pricing too much as this is left to the partners within PJCO however I know that we work on a 3 tier pricing strategy depending on what you are requiring support wise. This gives clients the flexibility to choose what they require.
It was so beautiful!
Of course, each client has varying needs and it's amazing when accountancy firms/ bookkeepers can adapt accordingly. With the run-up to Making Tax Digital, is anything going to change at PJCO in terms of pricing?
We like to think of ourselves as a versatile accountancy practice which can attend to every clients needs. This closely ties in with the various third party applications we suggest for clients to use alongside QuickBooks Online.
We have been preparing for MTD for the last 2 years so these changes have already happened. Our pricing changed with the implementation of QuickBooks Online and it has actually helped us decrease some of our clients fees due to the fact that QuickBooks can automate and speed up the processes that were previously in place.
Hi Jessica - this year has been extremely challenging with freezing snow conditions at lambing and then the extremely hot summer weather here in the south east of UK. Struggling to finish lambs etc...
Struggle with book work - it all piles up.
Thanks for asking.
Hoping things work out for you going forward!
I completely understand when it comes to the book work. It can be challenging and a little tedious at times to sit down and go through it all. However, don't let this challenge stop you from going forward. That's what we are here for - to help you through your journey.
Please don't hesitate to use the QB Community for business and product support. No question is a silly question here!
As a new business start up, creating and devising a charging model was the most difficult thing to do. It really became more of a crisis in confidence about my own value and worth, so i had to adopt a mindset change first. Then, I've done my research, what do other similar businesses in my area charge. I've created a 12 month business plan and reviewed where I may find there are peaks and troughs in business, so as a painter and decorator, I will be quieter during school holidays for example. This is where I've pre set some discounts and promotions, to keep some business continuity.