Money. It is a scary thing to think about, but sadly if we don’t, we risk our businesses failing.
Two extremes of thoughts on pricing are:
I love doing this, and feel ashamed to ask people to pay for it.
This product is worth more than everything else on the market because it was made by me and I am an expert.
You may be in between or maybe you oscillate between these two thoughts.
Today I want to talk about money to help you determine how to price your product, to feel comfortable asking for payment and may even help you with the million dollar question: when can you quit your day job?
Do the legwork
I have mentioned this before, but it is crucial to take a good look at your competitors. Who are they? How much do they charge? How long have they been in business? What is their reputation like? Your competitors will provide you with a ballpark for your pricing. (They will also provide insight into why your business is unique, but that is a topic for another day.)
Do a reality check
Once you know who your competitors are and how much they charge, realistically assess your product or service against theirs. Use a set of criteria to give you a clearer idea, such as range, quality, accessiblity and of course price. Ask friends for their feedback. Even better send out a survey so they can respond anonymously. It may be hard to take some of the feedback, but it will be worth it in the long run. (See here for some tips on dealing with rejection).
Besides helping with your budget and cash flow statements, this information should be helpful to justify your prices to customers – and yourself. If you are comfortable with your prices then others will be too. At the very least people you will avoid selling to customers who may become unhappy which is a harder problem to solve.
Do a budget
Now that you have a rough idea of how much you can charge for your product, you can work out a budget. Do not forget to include startup costs, your hourly rate and legal and insurance costs.
When determining sales volumes, do not forget to factor in your available hours. It is no good including 20 clients a week if you can only make time for one. You will feel disheartened when you don’t see 20 clients a week and will burnout quickly.
Once you have completed these budgets, you may find your offerings will cost more than you can charge. This is not the disaster it may first appear. As you practice your craft, time to market will decrease, fixed costs will be covered, you can negotiate with suppliers or you could even revisit your pricing.
Finally, you should now know how long you will be making a loss and what that loss will be. Is there room in your household budget to absorb those costs? If not, where can you save time or money to shorten this lead time? If not, do not hand in your resignation just yet. It does not mean you can’t, but it might be wise to work towards it as a longer term goal.
Some of the things you discover by going through this process may feel disheartening. But for every problem, there is a solution. Knowing the problems upfront will help you solve these problems, and you will be well on your way to becoming the business owner you have always wanted to be.