You’ve decided to start your own business. You identify your product, create a fancy new website, and you’re chomping at the bit to reach out to potential customers or clients. But before you do, you have to decide how much you are going to charge for your services.
Pricing starts with self-confidence.
Winning new business requires being able to convince a potential customer 1) that you have the expertise or skill set to help them solve a problem or fulfill a need and 2) your price is worth what you bring to the table. Simple, right? Not if you’ve never had that discussion before. You don’t have a book of business to call on as a point of reference. You think you’ll do a great job, but you don’t know. And that’s when you can find yourself grappling with self-doubt—wondering if your rates are too high or if you even should be charging someone at all. If you have what it takes to do the job, be confident in yourself and your abilities.
Don’t forget to keep the lights on.
Once you have your self-confidence dialed in, the next factor to consider is how much you need to make to stay afloat. How much is your time really worth? And at that rate, what’s the minimum number of clients you’ll have to secure each and every day to be able to keep a roof over your head, eat, and make a living? This part of the pricing equation is critically important—if you’re running on thin margins, you’re going to need a lot of customers. If you’re running on high margins, you’re going to need a smaller group of customers who are willing to pay what you’re asking.
A little benchmarking never hurts.
When you’re starting a new business, it’s always hard to tell what the market will bear. You don’t want to overcharge for your products and services and price yourself out but you also don’t want to undercharge and leave money on the table. Big companies do this all of the time—that’s why you don’t see any national fast food chains with a $3.00 “value” menu. They all seem to hoover right around $1.00 (give or take a penny). So look around. Find a few potential competitors and try to find out what they’re charging for similar products or services.
Customers vote with their wallet (or debit card).
Every time you speaking with a potential customer about pricing, you’ll gain invaluable feedback. Listen to what they say—how they react when you mention a price. Do they wince? Does their jaw drop? Do they roll their eyes? If they do, you might be a tad high. And when that happens, you have to either decide to drop your prices, focus on a different customer segment, or do a better job of convincing them of the value of your product or service.
Calibrating pricing can take time.
Don’t expect to have everything completely hammered out from day one. If you put some thought into your pricing and benchmark against your key competitors, you should already be in the pricing ballpark. But you still might find you need to tweak the way you package and price your goods and services…and that’s okay. The more your business grows, the more data you’ll have on whether your pricing strategy is working or it isn’t.
So what do you think? Share your comments.
Great advice all around. For LKc Style it was research, research, research up front. I always provide a post-service questionnaire that includes a question about the client’s opinion on the pricing. Over time, you’ll get an idea of the market and be ready to make changes as necessary–don’t have to much pride or lack of confidence to raise or lower your price based on what you’ve learned!!
Thanks, Laura. I’ve also spoken with some entrepreneurs who will adjust their pricing based on the client. So, if a nonprofit is looking for some help redoing their website, they might offer their services pro bono or at a deep discount whereas they might charge full price when working for a large corporation.
I find it an ongoing adjustment as to how we price our soon to launch web tool. It seems like the price right at launch must be more comparable to the closest competition, but once you’re differentiation is clearly known, the potential to adjust based off of value increases.
Great insight, Mona. It’s definitely harder to convince potential customers to pay a certain price when you don’t have that track record that helps separate you from others. Then you have to rely solely on fancy marketing.