Over the last couple of weeks I have been getting an increasing number of emails from business owners asking how they can correctly price their products and services so I have decide to answer their question in today post.
Question One: How do I determine the right pricing for my new offering?
Answer: Each market has different pricing structures, however there are some similarities. The first thing that should be done is to calculate all your outgoings rent, stationary, advertising etc. Then calculate how much time you will be spending developing this product or service. To this number add an extra 15% I have noticed that my clients often miscalculate the time needed by an average of 15-20%. Then calculate how much profit you would like to make, I normally encourage my clients to aim for 30%. Once you have added up all of the above figures include the tax that you will have to pay. Then divide the number by the amount of units or service hours that you are going to sell and that will tell you the pricing of you next offering.
Question Two: How do I raise my prices and will this result me in losing clients?
Answer: I have found that raising your rates actually results in more clients. Due to the fact that entrepreneurs need to pay their bills and are passionate about their businesses they normally under value their products and services by more than 30%. This results in having unproductive sales conversations because subconsciously they know that they are worth more. By raising your rates you exhibit two things a) that you know what your products and services are truly worth and b) that your products or services are in demand.
When I have advised my clients during our pricing strategy sessions to increase their prices they normally see an immediate increase in sales resulting in more revenue generated.
Question Three: I have seen on the Internet that it is beneficial to have three offerings, why is that?
Answer: It's beneficial to have three offerings because you're giving your customer choice. This results in more yes's then no's. You should price your offerings to cater for three budget levels. The lower priced offering should offer a solution to one need that your ideal client avatar has, then the second should provide a solution to 2-3 and then your top package will be the solution to 4-6 needs all with one overarching theme.
I have found that the best way to know if your price point is right is to ask your previous clients what they would be prepared to pay for a product or service that provides the solution to XYZ.