Pricing your goods and services should never be a wild guessing game. When you are reasonably new to business, though, it can feel like a loaded task. There are any number of factors to take into account, such as how much you are spending on supplies, how much your time is worth, and more. Your pricing structure will also ultimately set the tone for your small business.
You do not want to over or under price, so this week we focus on providing tips for how to determine the price of your products and services.
Start with establishing your bottom line: Calculating exactly how much it costs you to make or supply a particular item puts you in a much better position to formulate your product pricing. This is often one of the most tedious tasks to do and requires having some numbers on hand. With your records next to you, you will know the minimum possible price you can charge before taking a loss.
Establish the cost of materials: Look at how much you spent acquiring your supplies. How much did you spend on everything, and how many products that can produce? This will give you your material cost per item. Count the full cost you paid for your materials (including shipping, VAT, tip for the handlers, etc). Leaving these out could mean underestimating your costs of production.
Factor in the value of labour: One of the biggest mistakes craftspeople and budding entrepreneurs make when figuring out product cost is not including their own labour costs. One way to do this is to set an hourly rate for your time. Choose a wage that you would like to be paid. If each product takes you multiple hours, multiply your hourly number by the quantity of hours it takes. If you can produce multiple products in one hour, divide your rate by the number of products you made.
Find the market equilibrium for the good or service you are producing: Do a deep dive on sellers who offer similar items and see what they are charging. Are there many sellers in the market? How much are they selling? You can have a fun mystery shipping expedition or simply visit their website and do the research. Once you have a feel for the market, consider your options. Do you want to charge less and sell more, or charge more and sell less?
Do your customer research: Figure out what motivates your customers to buy. Is it price or convenience, quality or consistency? What would they be willing to pay for your product? Conduct your own market research if you are at a loss. Put together a survey along with some product samples. Conduct a focus group session and hear from them on these matters. This can help you gauge customers’ willingness to purchase as well as their perception of your product/brand.
• NB: Ian R Ferguson is a talent management and organisational development consultant, having completed graduate studies with regional and international universities. He has served organsations, both locally and globally, providing relevant solutions to their business growth and development issues. He may be contacted at tcconsultants@coralwave.com.
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