5 Mistakes To Avoid When Deciding What To Charge

Here’s a tricky question for all new business owners – how much should you charge?

If you pick a price that’s too high then you risk nobody buying, too low and you might not make a profit. Here are five mistakes to avoid when setting a price for your product or service.

1. Don’t add up your costs and then add a bit more on top

If you do this, you won’t take into account the value of your product or service to your customers, so you risk under-charging. Your product or service is worth what your customer is prepared to pay for it – find out what people are prepared to pay and use this to decide on your price.

2. Don’t look at what your competitors are charging and undercut them

You may be offering a better quality product, better customer service or offering a niche product that is different from your competitors. If so, you might be able to charge more than the competition.

Exceptions to this rule might be if you have a new way of delivering a service or manufacturing a product that means you  can sell it at a cheaper price than the competition and still make a decent profit. Or if you’re selling a product that’s identical to ones that people can buy elsewhere, like books and CDs.

3. Don’t charge by the hour

There are several reasons for this. First, your hourly rate should be quite high because you’ll need to pay your own salary, tax and national insurance as you would if you were employed. Then you’ll need to factor in all the costs that you can’t directly charge for such as planning, preparation, expenses, training, insurance and accountants fees. This will mean your hourly rate will be double or treble what it would be if you were employed by someone else.

Second, if you offer a package, you can throw in some bonuses that don’t cost you a great deal, but that offer great value to the customer, so making you look more attractive. This could be a CD of your own music if you’re a children’s party entertainer or an e-book if you’re a trainer.

Third, customers are happier knowing what the total cost will be. If a virtual assistant charges £20 per hour for writing a series of press releases, the client still doesn’t know what this will cost until the task is done. Instead, the virtual assistant and client could agree in advance that the whole job will cost, say, £100.

Some clients may insist that you charge by the hour, usually if you’re freelancing for another company. If not try charging for what you’ll actually deliver, rather than the time it will take you to do the work.

pound dice

4. Don’t charge what feels like a reasonable price.

This won’t take into account what it actually costs to provide that service or product.

Work out all your costs so that you know the minimum you need to charge to break even. Then you’ll know you must charge more than this to make a profit. Use this minimum value as a guide, rather than basing your charges on it otherwise you’ll be making mistake number one (above).

5. Don’t go too low

If you’re just starting out, it’s easy to charge too little then find it’s hard to raise your price later. It’s better to start with a price that’s slightly too high than one that’s too low. You can always offer a discount or special offer later if you find your price is a bit high.

6. (Free bonus point!) Don’t undervalue your own time

This is incredibly easy to do when you’re starting out. If you end up paying yourself  less than minimum wage you’d be better off getting a job than you would running your own business. Sometimes the worst boss in the world is yourself!

Be confident and charge what you’re worth.

Have you made any mistakes when deciding what to charge?

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