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The Secrets Of Pricing

Aug 17, 2007
Pricing your services is often under looked. You know what you can do, you know theres a market for it, but do you know how much you can get away with charging, without putting the customers off? Here are some few tips to increase your profit margin.

1. Find Out What Your Competitors Charge.

Ring round some of your competitors (you might want to use a fake name), and find out what theyre charging for the services you offer. You can then make a price comparison table. If youre working in an industry where price isnt a big thing customers look at, you might charge around the average of your competitors prices. If price is a big factor in your industry, play aggressively - put your table in your advertising materials, and price yourself so you beat everyone on the list (you might not be able to do this in some industries, however).

Be aware, though, that you might not always want to be the cheapest out there. Somewhat strangely, you might find that you can take away a competitors business in some industries simply by moving into that sector and charging a higher price than they do for similar products. One of the biggest secrets of pricing is that people assume price means quality, and purchase accordingly. Theres jewellery out there, for example, that is priced at thousands of dollars but only really worth a few hundred - what people pay for, oddly enough, is the status that comes with buying something with such a high price.

2. An Easy Formula: Cost Plus Time Plus Margin.

If you want to be more scientific about pricing, there are definately ways to do it. First, work out your costs. This is any materials that you use for your work, as well as your overheads, such as electricity, advertising, lawyers fees, and so on. Once youre done, you should have figured out how much each product you offer costs you, before you include the price of your work. You should overestimate this number, but not by too much.

The next step is to factor in a charge for your time. Basically, work out how many hours it takes you to provide a product, and then work out the pricing so youre getting a satisfactory hourly rate. Its up to you what kind of rate to set for yourself - start at minimum wage, and then work out how each increase would affect the price. A good guide is how much you would expect to pay an employee to do the job for you if you ever expanded to the point where employees were needed.

This is also a good opportunity to see if there are any efficiency savings you could make: if theres a service that would take two hours off the time needed for one product, and it would only cost you one hours pay to get that service, you should do it.

Finally, once youve added cost and time, you need to add in a margin. This should typically be about 30-50% of the price youve come up with so far. This money will be good for investing in expansion, paying taxes, and covering yourself against anything else that comes up.

3. Dont Get Emotional About It.

If youre selling something that youve put a lot of work into - especially something that youve worked hard to make - you might feel that the market price doesnt represent the value you feel it has. This is a terrible trap to fall into, as youre very unlikely to ever be able to sell anything if youve priced it too highly out of emotional attachment. You need to accept ahead of time the kind of prices youre going to get for things, and think of them as being worth that much.

4. Always Be Willing to Negotiate.

There will always be customers who want to negotiate with you over prices. Play them at their own game. Make it look like your making silly negotiating errors so that they feel like theyre getting a really good deal. keep a minimum price in mind and don't take any less when you finally settle on a fair price.
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