Pricing: What Should I Charge?
I’ve read enough blog posts and social media updates to know that women typically have a hard time charging what their product or services are worth. They all want to know “what should I charge?” and often pull a number from the air that sounds reasonable and make that their sales price. Then there’s the question do I charge by project or by the hour. Whether or not you choose an hourly or project rate, you still have to come up with “the” number…the price at which you’ll conduct business and make a profit.
Before you can begin to price your product there are a couple of things to know and do.
#1 – Do your homework
Check out the competition. See what similar companies are charging for the same service. Be sure you’re comparing apples to apples and oranges to oranges. If you’re a freelance designer, charging what an agency charges may price you right out of the market. Review companies in different phases of their growth and development. See if there is a difference in what each charges. Then you have to know (or have a real good guesstimate) what your customers are willing to pay.
#2 – Know your numbers
I can’t stress this enough. Know what it takes for you to produce the work. Calculate for materials, your time, all that’s required to get the job done. The last thing you want to do is set a price and you’re operating at a loss from the beginning of the job. Trust me on this one.
Here are a few pricing formulas to consider.
Consultants and coaches typically charge by the hour and have clients either prepay for their session or send an invoice at the end of the month.
It’s critical that you research the competition and make sure you don’t undercharge! Undercharging is one of the worst things you can do for an entire industry. Some coaches and consultants use a formula where they charge three times their salary.
Salary x 3 = hourly rate
So let’s say you charge $40/hr. You would multiply 40 x 3 for $120 per hour.
Using this formula should cover your expenses (especially if you have a home office). You still may want to track your expenses/overhead just to make sure.
There are a few formulas for product pricing but I found this one on Etsy’s website and liked it the best.
Materials + Labor + Expenses + Profit = Wholesale x 2 = Retail
I like how profit is added into the equation. The Etsy website breaks down this formula here.
If you’re in the service industry this is a good pricing formula to determine your hourly rate.
Hourly Overhead Expense + Hourly Wage + Profit = Total Price per Hour
This formula, like the previous one, requires you to do your homework and know your numbers. You have to calculate your expenses so that you can properly determine your hourly rate. Again, be sure to check your competition and market demand/saturation.
You can also use the above formulas to determine which price range you want your product or service to fall.
High-end pricing reflects prestige, status, and image. High end pricing speaks to a service or product’s features, high quality, uniqueness, and an iron-clad warranty. Typically novelty items. To have high-end pricing, a brand has earned the right to be deemed high-end through excellent customer service and a quality product.
Mid-range pricing still offers quality, typically practical and offers a warranty as well. In mid-range pricing value is critical. Customer service is also important.
Low-end pricing is based solely on price. Typically sold as is, no warranty, no refunds, no exchanges and this price range offers no customer loyalty. Low-end pricing can land you in a price war with competitors.
What you charge for your product or service should never be a guessing game. You don’t want to undercharge and operate at a loss because that’s not good for your business or your industry. Take the time to work the equation best suited for your business and then you’ll find working in your business to be satisfying and not a drudgery because you’re not being fairly compensated.