There are many methods that can be used to calculate what should be charged for products and services. In this session we are coming from three main perspectives:-
1. What are others in my industry charging?
2. How much do I want to earn in a year?
3. How do I value myself and what I do or sell?
What are others in my industry charging?
Many people don’t know how to calculate or come up with a price for their products and or services so they use what others charge as a guide. This is all good and well but doesn’t take into account any variations you have from them. You may have a ‘at home office’ and they have a dedicated premises; you have higher qualifications or more valuable experience than others; you may have other sources of income to supplement this activity, etc. All these points can make a significant difference to how much you can or should charge.
The other reason this is not an accurate method to use alone or at all is because this doesn’t take into account the following factors:-
• the location of your target market
• the types of people who are your target market
• the income of your target market
• the value of your products/services in the mind of your target market
• the value you add to your clients/customers
• the value you feel you have to add (we will expand on this later)
• the unique elements of your product or service
Using industry rates as a pricing model keeps your mind in the competitive not creative mindset and this in turn limits your earning capacity and opportunities.
How much do I really want to earn in a year?
Using this pricing method in combination with others can be much more beneficial. This keeps your mind in the creative mindset and the philosophy that everything is limitless.
Now imagine your ideal life –what it would look like, what would it include, where would you live if you could choose to live anywhere, where would you work from, what would your home be like?, where would you holiday? These are all things to consider.
So to have a lifestyle like this how much income is required each year? From this amount deduct income from other sources and your partners income. Once you know how much annual income you require you can calculate what that is in weekly, fortnightly or monthly frequencies.
Using our example this would mean an annual income of the $165,000 means the following amounts in other frequencies:-
$13,750 per month
$ 6,346 per fortnight
$ 3,173 per week
If you have a service business where you charge by the hour and have products to sell, and you know 70% of your business profits come from your services and you work 1430 hours per year (an average of 29.8 hours per week conducting your services). In one year you would need to earn $115,500 per year from your services alone. This would mean you need to earn $81 per hour for yourself (so add on any expenses, superannuation and taxes).
If you have products as well, you can total number of products sold per year and divide this into the remaining amount of earnings require for the year, this will give you the average base price per product (don’t forget to add on any expenses, superannuation and taxes). For example that means $49,500 divided by 1,700 (products sold) gives an average product base price of $29.
How do I value myself and what I do or sell?
The last pricing method is a very good place to start from but the last consideration is and should be how you feel about the value you add to others personally and through your products. For example if your product saves people a lot of time then it is of more value to them and they are often prepared to pay a little more money for good quality products or services.
It is difficult for small business operators to get an understanding and true appreciation of what they have to offer, yet this is essential if we are going to be successful in business. Why is it so difficult for us to appreciate our own value, many factors could be mentioned here. Fundamentally it comes down to the following reasons:-
• our childhood has affected or feelings of worthiness and we haven’t let them go
• financial situation of the family when you were growing up and their views of money that you have adopted as your own
• confidence in self, especially when self promotion is involved and dealing with others
This is often why people have a problem setting a price for products/services they pass on to others.
This is where a good coach can assist you, if you don’t take time to understand and deeply connect with the value of your products/services it can have adverse reactions to your self esteem and self confidence. When there is a difference between what you really feel you are worth and what you are charging it will show in your business numbers, you feel stressed or burdened or that you are not doing enough, your prospective and current clients will feel something is too cheap or too expensive. In contrast when you wake up and are completely comfortable about your worth to yourself and others you feel relaxed, people are more comfortable dealing with you and the confidence shows through when you talk about prices. You also have a freer mind to get on with what your to-do-list, you will accomplish more and because you are more confident and relaxed more opportunities for your business will come your way.
The price you ask people to pay reflects how much value you are offering and how much respect you have for yourself and that which you are offering to others.
These questions are for your deep thought and action:-
1. Are you completely satisfied with what you are currently receiving for your products/services?
2. What are you gaining by staying in your comfort zone – with actions and business associations?
3. What are you losing by staying in your comfort zone – with actions and business associations?
4. Select a coach to help build your self esteem and confidence and keep you accountable for these and other tasks related to your business goals. Ensure you have weekly or fortnightly sessions with them.
5. Follow up with existing clients and customers about how they have benefited from dealing with you, what outcome did they gain that they would not have had otherwise. See the following examples:-
a) Ask at least 3 people who know you and your work well, and ask them what price they would be happy to pay for your services, perhaps clients you have serviced for a while.
b) Ask these same people the 3 best things about doing business with you and the 3 biggest advantages of taking up your products/services.
c) Ask these same people what the return on invest was from taking up your services, how much increase in sales did they receive or how much time did it save them.
6. How can you add value to your products/services, without costing you much more time or money?
7. What makes you any less worthy than anyone else in your industry? (No excuses here, only hard facts).
8. List 10 of the best compliments you have received in the last 3 years.
9. a) Who are you not confident in dealing with and why – types of people and/or business? (rate from 1 as least difficult to and 10 as most difficult)
b) List the names of at least 6 names of people or business that fit the each of types from the first part of this question.
c) Find and note the contact details for each one.
d) Commit to working your way down the list by contacting one each month. Write this in your diary now.
10. Learn how to promote yourself better by looking at what others in your industry are doing to promote themselves and what you’d like to do or be involved in.
11. Learn to ask prospective clients/customers open questions like “What would it be worth to you if I could triple your sales in 3 months?” or “What would it be worth to you if this product/service could save you 3 hours a week?”
12. Do you and your family deserve to have all the things in your ideal life you described before? If the answer to this question is yes then commit to your choice to give it to them by charging what you are your products are really worth.
You only have a short time in this life to be, do and have what you desire, so why not go for it?