How to price your products and services
With your business model in place walk through this exercise to determine how to price your products and services.
There are a few elements that go into pricing but the three most important to consider as an independent business owner are:
- your personal income needs and goals
- what the market is for comparable products and services
- what your perfect customers are able and willing to pay
You may have to do a bit of research and surveying but it shouldn't be difficult coming up with baseline figures that support your business model (i.e. the ability to cover your expenses and be profitable).
On top of those baseline figures you should think long and hard about the value you are adding to ensure you do don't underestimate your worth.
From my personal experience starting businesses as well as coaching entrepreneurs, the big issue isn't overpricing but devaluing your offering and making it available for much lower than what it could actually demand.
You can't serve your customers if you can't support yourself which is one of the reasons why reaching the six-figure milestone is so important. I urge my coaching clients to determine an exact figure for what they need to survive and thrive as a business owner and create and price their work accordingly.
- Determining your income needs and goals
- Evaluating the market for comparable products
- Figuring out what your perfect customers will pay
- Refine your pricing figures
- Assessing the value you will deliver
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DETERMINING YOUR INCOME NEEDS AND GOALS
The first step in pricing is being upfront about your personal financial goals. Sort out what you need to make in order to survive because you can't properly serve your customers if you can't support yourself.
For instance, if you want (or need) to make $100,000 in your businesses then that roughly translates to $8,333 a month and $278 a day. Keep these figures in mind because they'll come in handy shortly.
I like to use the $100,000 income goal because it's aspirational for most solopreneurs and independent business owners but possible to reach in less than a year of business if you work smart.
EVALUATING THE MARKET FOR COMPARABLE products
Next, take a look at a few direct peers in your industry and see how they price their products and services. Also look at any organizations, blogs, or companies that create similar offerings and review their pricing.
You want to get a sense of what prices your market can support by seeing what's already out there. Synthesize your market research by creating average price points for each type of product you want to offer.
FIGURING OUT WHAT YOUR perfect customers WILL PAY
Now that you have an idea of what your different offerings can demand in terms of average price, you need to refine your figures a bit more by figuring out what your perfect customers are willing to pay.
You may already have a sense of their demographic makeup (including income) from the work you put into the persona. This may give you a sense of what they can afford and whether it aligns well with the market averages.
Additionally, don't be afraid to survey current or potential customers and tweak your numbers even more based on direct input.
REFINE YOUR DRAFT PRICING FIGURES
At this point you have a clear sense of what you will need to charge. For instance, if you are a coach that offers one-on-one coaching you may only have the capacity to take on 15 clients a month so will need each client to pay about $555 a month.
Now ask yourself: is this feasible given your market and your perfect customers' income? In this case as a coach, would it be more efficient to create a minimum monthly package instead of offering services by the hour?
Play around with the numbers until you land on a pricing scheme that feels right given all the above considerations.
ASSESSING THE VALUE YOU WILL DELIVER
There's one last question to ask before finalizing your pricing: is it truly reflective of your worth?
Evaluate your expertise and background and think about all you bring to the table. Think about he ways in which your business is able to stand out from the pack.
If you bring exceptional value to the table then that justifies marking up your draft figure. If you can back it up it won't be difficult to convince customers to pay a bit of a premium to get access to you and/or your work.