Price is much more than a number that covers your costs and makes a profit. Your price communicates your value.
Take a minute and think back on how you have set or are thinking of setting your price.
Most business owners have two ways to look at what they should be charging for their product or service. Both ways are wrong!
The first method they use is to look at what their competitors are charging and then try to set their price just above, just below, or right at their competitors price. You have no idea if your competitor is actually making a profit! Even if you think he might, how do you know he’s not sinking himself into debt expecting the business to pick up any day?
This pricing method sets you up for a race to the bottom. When your competitor lowers his price, you will too in order to “stay competitive.” You are also not sure if you can even make a profit at that price.
Setting a “competitive price” positions you poorly as well. There is no differentiation between you and your competition. When a customer has no other measure to make a decision, they will base their decision on price. When a customer’s decision is based only on price, it’s a roll of the dice as to who will win.
The second method often used is to total up what it will cost, your time investment, and how much you think you should take home. However, this method does not take into consideration how your customer values your product or service.
Many of the businesses that I have seen determine their costs like this don’t take into consideration hidden costs. Some costs overlooked are their marketing costs, basic overhead like facility costs and utilities, or taxes.
Chances are good that you are undervaluing your own time as well. Most of us don’t value our own time and far undercharge for the time investments we make in the business. You are worth more than you think.
David Bryant Mitchell is a business coach and consultant that works with business owners and managers to create momentum in their business with strategies and tactics that they can implement today. These strategies are based on the five building blocks of business: Marketing, Leadership, Operations, Finance and Systems.