If there is one thing in business that is bound to give you anxiety, hot flushes and draw out emotions like a Kleenex commercial, it is pricing your products and services! We hear so much about how to “Charge our worth” and “Get paid well for what you do” but the reality is much more complex than that, right?! We still want to SELL the things and we often don’t want to price our favourite people out of being able to afford us.

I know for me pricing is something that I have to keep working on. Not just keep increasing, but keep dealing with the mindset stuff that comes up when I have to figure out a new price point, work on new ways to explain the value of my products and services to my ideal client so the price isn’t the key factor in their purchasing decision and certainly the act around paying myself well for the work I do is an ongoing struggle. So, this isn’t coming from a place of “I’m the expert!” or even “I’ve got it all figured out, so let me tell you how”. These are however some lessons I’ve learnt the hard way after seven years running my own business and working with hundreds of clients to help them build theirs.

Five things I know for SURE when it comes to pricing are;

1. You must know your overheads – in detail

Overheads include all the costs associated with the running of your business that are not directly associated with the manufacture of your offerings. Obvious overheads include phone, Internet, electricity and rent etc. But it’s important to remember the less obvious ones as well. Sit down and make a list of ALL the costs you have in your business and note down things like website hosting, petrol, market stall fee, office supplies, storage costs and educational tools like magazines, books, courses and training programs.

Things like parcels and postage bags can be classed as overheads, but if you don’t then make sure you DO remember to count them in the materials cost of your products. Many people count the POSTAGE but forget the PACKAGING.

I really encourage you to take the time to go through your bank statements and paypal accounts, as there are likely to be costs you don’t even think of – $15/month for Mailchimp, $11.50 for Acuity, $5.50 for Google Docs. These small recurring payments are easily overlooked when working out the running costs of your business. But you need to know all of these so you can make sure each of your products and services is pulling their weight in terms of covering a certain portion of your overheads.

 

2. Labour is NOT Profit

Often in the small business world PROFIT is referred to as the money you pay yourself for all the work you do, which then makes it an interchangeable term with LABOUR. These should be two separate things in your business and in your pricing structure. You need to pay yourself for your work AND make a profit on top of that.

Of course, if you aren’t yet paying yourself, or paying yourself well – don’t stress over the profit. Focus first on taking home a wage from your business so you are getting paid!

But – please note PROFIT is different.

Profit is Money that has a purpose BEYOND the day to day operation of your business and life.

Megan Auman, Artful Business Conference 2012

 

3. Know what you NEED and want from your business

Everyone’s situation is different. Everyone’s lifestyle, family make-up, monthly bills, childcare arrangements, marital status, support network etc etc is different! You need to know what it is you want and need to take home from your business each month to make your business a supportive and contributing part of your life.

While it’s always helpful to set goals around your income and sales, it is so much more motivating to actually set goals that mean something to you. Once you have worked out what you need to take out of your business to contribute to your life and family, then you can reverse engineer this and work out what goals you need to have around your business revenue, sales targets and your pricing structure.

 

4. There is more to Pricing than just numbers

The price of your products plays a HUGE role in the way people perceive your work. Despite what you might have thought in the past, your objective when setting your prices should not be focused around making the item as cost effective as possible.

If you set your price too low you are sending a message to your customers about how they should value your products. Try and look objectively at your prices, from your customer’s perspective. Consider what assumptions people might be making about your range, based on your current prices.

Consumers are naturally drawn to more expensive items.

Higher prices create the perception of quality, exclusivity and value.

Taking this into account, you can expect as a retailer that a customer will in fact be more attracted to a well-positioned, well-marketed and higher-priced item than they would a “bargain” item where the focus is on quantity not quality.

Think of how a “bargain” item is often viewed from a customer’s perspective:

  • Cheap
  • Quick and easy to create
  • Not going to last long
  • The creator hasn’t taken long to make the item or it requires little investment from the seller to fulfil the service
  • Having less benefit for the consumer
  • It is an item or line not valued by the retailer

The money the customer requires to get your product or service and all of the benefits that go along with it, is the value that YOU set on your product. Simple as that.

You need to show your customers that YOU value your work, so that they can too.

This of course depends on who your target market is and the marketing around your brand and offerings. But often if I price rise in your business sees a drastic drop off in sales, the answer is not to drop them back again, but to rework your marketing and perhaps even seek out new markets. Which brings me to my fifth tip…

 

5. Raising your prices doesn’t have to feel ICKY

The truth is there is no way to guarantee you won’t upset some of your customers, but you also might be surprised how many want to cheer you on and who are excited to see your business stepping up a notch.

There are two basic ways to raise your prices;

  1. Just do it! OR,
  2. Let people know that you are about to do it.

You decide what feels right for you and it will depend on the timing, your current customer base, how high you are raising them and how confident you feel in your new prices.

Option 1 – Just Raise Them

To be honest with you, no one is paying as close attention to your business and your prices as you probably feel they are. You are likely expecting a tirade of emails and comments on your price increases from disgruntled customers, in reality that is very unlikely to happen.

If you are raising your prices by a small amount most people won’t even notice you have done it. And a simple way to test this is to simply add $1 to each of your current prices.

Think about that for a moment, as a consumer this increase is highly unlikely to change your buying behaviour. But as a business owner consider the number of sales you made last month. Was it 10 items, or 100? What would it mean to your business to make an extra $10 a month, or $100!

{And when you do this PLEASE open a new account and call it your PROFIT ACCOUNT – that’s where this extra $10 or $100 should go – start building profit into your business model even if it is at $10 a month}

I’ll wait here while you pop over to your sales pages or your Etsy store and put everything up by $1.

Let me know if anyone even notices.

If you are met with resistance from existing clients, have a simple statement ready which explains the price rise was necessary because you are taking your business seriously and you are excited to build a sustainable project so you can keep on creating.

Make sure you don’t get defensive or apologetic and try not to be insulted by people’s comments, it might be that they are not your ideal customer – and that’s ok.

Option 2 – Inform people before you raise them

This can be a great way to explain your new pricing and make some immediate cash flow, all at once.

Use your databases (Facebook followers, email subscribers etc) to let people know that you will be putting up your prices on a certain date in the future. I wouldn’t make it any more than 3 weeks.

Warning people that the prices are going up SOON allows them to buy stock they have had their eye on at the current prices and might give you a quick injection of cash.

Make an exciting event out of it, invite people to be excited for you. Your business is growing up and your prices need to reflect that.

What about the naysayers?

Are you sitting there thinking; “Well, that all sounds good, but people already complain about my prices so I can’t possibly put them up!”

Let me tell you a secret. If you double your prices, there will be people tell you it is too expensive. The thing is, if you halve your prices, there will STILL be those people who tell you it is too expensive.

You need to remember there are much better ways to differentiate your business in the marketplace than competing for the lowest price and you deserve to get paid for your work!

If you want to know more about how to crunch the numbers and how to go about putting your prices up, then I invite you to join me on January 30th for a FREE online workshop where you will have a chance to ask questions, we will do some of the math together and we will talk more about how to put your prices up without losing sales.