5 Steps to help you with Pricing
Ask your customers to pay too much for your product or service and they will stop buying; ask too little and they may assume your product is poor quality.
One of the main reasons people work for themselves is to make money – money is just another word for profit.
Making a profit can depend on a lot of different factors. Some of those factors are outside of your control like the market and the competition. Other factors, you have some control like leadership, management, where to locate your business, the number of locations.
Pricing is one of the most important factors in your business, it has a direct impact on your profit. Setting the ‘ideal price” for your business can feel a bit hit and miss – particularly in the beginning. So we need to look at the items we can control and that is costs.
Understanding your costs
Whatever pricing strategy you plan to use, before you set your prices, you should figure out what your costs are. Understanding your costs allows you to operate from a place of knowing, a place of control.
The easiest way to look at costings is through an example.
Debbie is a Chinese Herbalist and has a degree in botany. One of her revenue streams are workshops where she teaches people to make up their own herbal remedies.
Debbie likes to keep each workshop limited to 10 people as she likes to provide hands on guidance and wants to create a nurturing environment.
Debbie has run a couple of workshops for ‘beta testing’ and is confident her workshop is ready for paying customers, the only thing is – she does not know how much to charge! She has looked at her competition and the price ranges from €50 to €200.
She is unsure of her next step.
Step 1 – Debbie needs to make a list of all the items she has to pay for and buy to run a one day workshop.
Room Hire €150
Containers €3 per attendee
Light lunch €8.50 per person
Teas & Coffees €1.50 per person.
Petrol (Travel) €50 average per workshop
Hotel (overnight) €125 used in 50% of the workshops
Step 2 – Work out how much each ‘workshop costs’ for 10 people:
Step 3 – Now we know how much money we need to cover we can then look at Sales:
You may remember that Debbie’s cheapest competitor charges €50 – so if Debbie uses that price as a guide her Sales income will be:-
Step 4 – Lets look at what we know so far:
We see that at €50 per person Debbie will lose €40 on her workshop.
So Debbie is starting to understand that she cannot compete with her cheapest competitor AND keep her workshop to 10 people – she may use her small workshop size a Unique Selling Point to drive her prices up!
Step 5 –Debbie starts playing around with the numbers and is starting to see how much profit can be made from her workshops.
Debbie has a lot of options she can work with. She can increase her class size, shorten the time given or come up with a new format. Costing her workshop gives Debbie an understanding of the costs involved and provides her with information that she can use to make good planning decisions for her business.
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