Business Finance

7 factors to consider when setting prices for your services or products

You have a business, and are looking forward to selling your products or offering your services. Then someone comes up to you, and asks how much you will offer your service or product, and there the confusion begins.

We understand – there are fewer aspects of a business that cause confusion than when you are setting prices for your products. With tangible items, it might be slightly easier, while for services the line can become blurry – but there are still numerous doubts it raises in your mind. You might be afraid that the price you are quoting is too high or too low, and you might wonder how you would know you have set the value correctly.

There are various models you can use, but chief among them are two: usage rates, and flat rates. You can read more here to learn about them and get an idea of what they are about. In this article, we will look at the important factors you can examine when you are deciding the final prices of your service or product.

Your cost

The primary reason that a business exists is to make profits. Therefore, if your products are not selling enough, or their price is too low to help you break-even, then your business will ultimately be in trouble. For this reason, you need to total your annual costs and divide by the projected number of hours you will work in the year – and always take into account sick leaves, vacations, hours when you do not have work, and other aspects.

When calculating the costs, you should also factor in the hidden costs you have in the business. These include taxes, unpaid invoices, insurance, and buying stationery. This, along with the profit considerations, will help in setting the correct price that helps you break even and even generate revenues.

Demand for your product in the market

If the service or product you are offering is in high demand, it means the supply is short – it should therefore be made more expensive to keep up with the market. On the other hand, if the work is to be found in plenty, then you need to lower the price to compete with other suppliers effectively.

One of the major signs that demand is at a high include when there is too much work coming in, customers telling you they are struggling to find a provider of the product or service, and the available freelancers all being overloaded. On the other hand, you can tell there is an oversupply when you are struggling to find a customer, there is a shortage of work, and an increase of freelancers.

What are the present standards within the industry?

You might want to follow the previously mentioned models, but you might be unsure – it never hurts to ask. While it may be difficult for people to tell you what they charge, it might give you some insights.

Make a point of asking both freelancers and larger businesses in the industry about their prices. The more information you have about their rates, as well as the level of services they give with the money, the better you can adjust your own rates and adjust better in the market.

Your own skill level

There are no way all freelancers and businesses will charge exactly the same for all their services and products that they offer, and there is an expectation that the consumer will pay accordingly for what they are getting.

As a general rule, the better you are at your skill level or overall experience, the higher you can charge customers or clients when they want you to perform services for them. If you are dealing with products, consider the value added services you have, such as delivery of the product to the customer’s home, and you can charge higher to cover the cost. Whatever your final rates, it must match up with the service level or product quality you offer.

And that brings us to:

Experience level

Experience is slightly different from skill, even though they look the same on the surface. The more someone works in an industry, the more skill sets they have, and they can start charging higher fees. For instance, having two photographers at the same skill level, but one of them charges higher because they have more years of experience in the industry and can save their clients’ money and time in the long term.

What is your business strategy?

It may not seem like much, but the angle or strategy you choose to take your business to will play a major role in your final pricing. The pitching attempts you make, and how you present yourself to the customers, will determine whether they see your products or services as premium level that you can charge high end, medium level, or low cost.

Knowing the customers

It is very important to figure out your potential and current customers, and knowing what they expect from the products you are offering. For instance, are they expecting you to offer them products at low prices, or are they expecting high end approaches? In addition, how often do they consider pricing when they are making a purchasing decision?

This will help you look at the products or services you are selling, and see whether you are pricing them correctly. It also helps you figure out the extra services or products you should be offering, as well as whether you are selling to the right target market.

When you study this, you might even discover that your market approach was incorrect, and you need to change your target market to make the business more profitable.

Final thoughts

While it may seem difficult to figure out if you are charging correctly for the services or products you offer, it is important to consider as it makes an impact on the profitability of your enterprise. It will involve plenty of trial and error, but it will be beneficial in the long term.

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