Enjoy this week’s guest blog post by Kanoe Riedel, blogging expert, on knowing your worth and how to set your prices!
You have a killer business idea, and you’re excited to get it up and running. Not so fast! Before you invest a penny into getting your small business off the ground, you need to set your prices.
Deciding on a pricing structure is one of the most important steps you’ll take when starting a business. Still, it can also be one of the most challenging ones. Your prices impact every facet of your business, and ultimately, your own finances.
So, before you start pricing your offerings, consider these points to make sure you’re confident in your strategy.
Your Experience and Credibility
Whether your new business sells services or products, your experience and expertise should be factors when setting your prices. Someone with 10+ years of proven success in their industry can likely provide more value to a client than someone hot off their very first job.
That’s not to say that a green business owner ought to price themselves as cheap or inexpensive. But it’s important to be realistic about what you bring to the table. Be confident in your value and consider it when you structure your pricing.
What You Need to Stay Afloat
If you haven’t already, it’s best to create a comprehensive breakdown of all of your operating costs. With a clear picture of what it takes to keep you afloat, you can decide what revenue you want to generate with your pricing. Perhaps most importantly, you need to know what it costs to produce what you’re selling.
Your Product Costs
Small businesses that sell physical products need to be crystal-clear on their bottom lines. Keep an accurate and up-to-date account of the costs at every step of producing and selling your product. Track every cost detail, from manufacturing and packaging to delivery and your profit margin. Need help determining a specific product pricing strategy? There are various strategies available online for you to test and apply to your business.
The Cost of Your Services
Executing your services may not require the tangible elements that making products does. Still, there are time and resource investments at play. How many hours go into providing your work? What business expenses do you incur every month as you execute your services? These are essential factors to figure into what you are charging your customers.
While you might be able to get away with low prices as you’re getting started, you should ensure your pricing structure covers what it takes to (at least) break even. If your pricing doesn’t support that, you’ll need to evaluate why your pricing isn’t allowing you to cover your costs.
The Competition’s Pricing
A useful strategy for developing a baseline for your pricing is to do a little market research. Check out what your competitors are charging for their offerings. How do their products or services differ from yours? Your competition’s prices might not be right for your business. But assessing their approach will give you an idea of what your ideal audience is willing to pay.
Exploring competitor pricing structures will also help you gauge whether your pricing plans are realistic. If you notice that are sky-high or way-low compared to your competitors, stop and take a close look at why that is. Are you giving away too much value with a small price tag? Do your competitors provide a value that your business is missing? Developing a solid understanding of how your competitors are positioning their prices will give you useful insights for setting your prices.
Planning for the Future
The pricing structure you implement now can limit your ability to position your products or services moving forward. Over time, your market will change, as will your competitors’ prices. Setting your prices too low for today’s customers might negatively impact your perceived value. Choosing higher prices to start could turn off potential customers and cause you to miss sales opportunities.
Be sure to keep your long-term plans and business goals in mind as you explore your pricing strategy for the short-term. While you can always adjust your pricing in the future, your initial structure must be part of your overall business plans.
Conclusion
Setting prices for your small business is a pivotal step in creating your path to success. Every business has a unique set of factors contributing to its productivity, from your experience and credibility to your service offerings and competitive landscape. As you set your prices, be sure to consider the points shared above to ensure your strategy is right for your business.
Kanoe Riedel is the founder and blogging extraordinaire behind KanoeRiedel.com. She’s passionate about helping creative entrepreneurs grow their businesses and connect with their ideal customers. Kanoe has written engaging content for entrepreneurs and small businesses across various industries, including graphic design/branding, wedding, health & fitness, events, floral, and coaching.