How to Price Your Products or Services
This is the age old question, isn’t it?!
It's really difficult for a lot of people to figure out how or where to price what they make or even harder, the services they perform. So if you struggle with this, you are not alone, my friend!
It's a balancing act between covering your expenses and being profitable all while remaining competitive in your industry with the cherry on top to be doing it all ethically.
Why is this important?
Well, pricing is an essential aspect to any business' success.
The price you charge for your products or services will determine the amount of revenue your business can make. Charge too little and you won't cover your expenses or make a profit. Charge too much and you might charge yourself out of the market.
Pricing is also a perception to your customers. There are so many studies highlighting that people place a preconceived notion on things based on price, irregardless of actual quality.
Stanford Business did a very famous study that asked people to rate two different wines, one was labeled as expensive and the other was cheap. Despite the fact the two were identical, people rated the "expensive" wine as tasting better than the "cheap" wine.
I, for one, will happily buy a $4.99 bottle of wine at Grocery Outlet and have been pleasantly surprised more often than not!
But also, how many times have you purchased a low dollar course but never completed it because the price didn't weigh heavy enough to spend your time there, despite paying for it? No judgement, we’ve all done it in one form or another.. but if you want to be relevant in your pricing, that does come at a cost.
Ever heard of the ‘pink tax’?
What I will never advocate for is charging more for a specific group of people and playing on their emotions because you can.
That’s a shade of capitalism that has never been appealing to me but it happens and it happens throughout our society from redlining (where it’s straight up refusing to sell homes to black and minority demographics) to pink tax (where a company will make a product for both men and woman and charge more for the woman’s because they can), it’s everywhere.
This is the way I like to look at it -> if you’re playing on peoples needs/desperation and aren’t equally valuing what you’re providing, than I’d like you to consider reevaluating why you’re doing business.
If you’re only goal is to make money, than hey, you’re well within your right and taking steps towards your goals. I can’t argue against that.
If your goal is the impact of your product/service, than realize unequally charging people based on your perception is creating a further divide within our society and has an overall negative impact.
And hey, this is just my perception of the situation. I just know I get mad when things for disabled people cost WAY more because.. they can charge that. Or anything maternity.. holy crap is that shit unnecessarily expensive.
None of that sits well with me on a personal level but yes, it’s well within peoples right to do it and its well within the consumers right to not buy. It’d just be nice to live in a world where people valued people more than profit, is all.
Pipe dream.. I know! Okay.. I’ll get off my soap box… back to business..
While there are basic factors you should be following when determining pricing, there is also the psychological element to also consider.
What are these factors you speak of?
The big one is cost! What did it cost you to bring this thing to life.
Products are a bit easier to get an understanding of this, but with both you need to calculate in your direct and indirect costs.
In both situations, it's very important that you include YOUR time/rate in this calculation.
There were decades (and still going honestly) where large conglomerates outsourced labor to places where cost of living was minimal on top of insane poverish wages. This has led to a disillusion of what it actually costs to make something because we see these things in the store for a fraction of the price.
If you can, always choose to be a part of the solution by buying that thing from a local source instead. Because the more sales they get the lower they'll be able to price because their costs will be lower at scale and your supporting your fellow entrepreneur with sustainable business practices.
Ha, evidently I’m just on a soap box today.. anywhoo...
Also check out your competition. It's a good idea to see what large conglomerates are doing, but that's more so you can get a range of what your market is doing. I recommend always looking at people in your area and roughly at your scale, see what they're doing because they're making it work with where they're priced.
Then lastly and arguably the most important is value. This is also where the market research on your competition comes into play. What are they doing compared to what you're bringing to the table, how will it impact or transform your target audience?
In conclusion -
Pricing is a very personal thing that's difficult to easily lay out because there are so many factors that are personal to you, your situation, your market, your niche, your product and/or your services. You can even do tiers, bundle pricing, project based, flat fee, negotiated fee etc etc.
Ultimately, it's figuring out what is a price you can easily and confidently say when making an offer and then people turn around and buy.
I also encourage you to figure out what your goals are. If you goal is to generate $1 million in sales but you're selling $50/hour sessions... math will tell you that's not possible. Figure out your end goal and then work backwards to make sure you have a strategy in place to accomplish that goal.
If you need any help, don’t hesitate to reach out!
I know how confusing and overwhelming it can be but the more aligned you are to your pricing and your goals, the math to success is inevitable, my friend!
audrey@thegracefulpenny.com