A common and often stressful decision faced by business owners is pricing your products or services at a competitive level. 

Consider the following steps when deciding how much to charge.

STEP 1

CHECK MARKET CONDITIONS

It is important you take the time to research your competition.  Firstly, ascertain if you are servicing your local area or a wider geographical area.  If local, then you do not need to compare with other areas unless they are also servicing your area. Always try and compare like for like as close as possible.  Ask acquaintances & colleagues working in your sector.  Compare any online comparison sites and online tools.

STEP 2

ASCERTAIN YOUR BREAK-EVEN POINT

There is little point running a business where you make a loss; unless it is a non-profit of course.  You need to ensure you make enough profit to sustain your desired lifestyle.  Although in the early stages of your business, you should appreciate that income may be lower than desired, as you establish your market presence and develop your marketing and general business skills.

Be aware that not all hours worked will generate an income and taxes on profit may also require payment after your annual allowances have been exceeded.  If you intend working 40 hours per week, you should not expect to generate more than 30 chargeable hours at most.

You need to allow time for basic admin and filing, bookkeeping and tax, marketing and the handling of general enquiries and not forgetting the need to keep up to date with your products and services and developing your skill level and perhaps extending your range of product or services.  

It is crucially important that you keep an eye on your overheads and keep them to a minimum, perhaps rent a mailbox initially, then a desk and ultimately an office or workshop, if required.  

Office equipment is often available 2nd hand and timing the purchase of hardware, software and general products required for your business can pay big dividends when sales such as Black Friday etc are imminent or by using discount sites similar to Groupon.

Consider whether learning a new skill is more beneficial than paying someone to do it quicker, and likely better than you, whilst you earn more selling your own products or services.  

Why learn to design a logo or learn taxation when you will likely need to purchase software/hardware given you may not need to use that skill regularly and thus lose time from your core work.  If on the other hand, you have plenty of free time then such an option that may be a good decision.

STEP 3

CALCULATE HOW LONG A JOB WILL TAKE

It is crucially important that you calculate the full cost for all time related to a project.  That includes email exchanges, clarifying your services, meeting and discussing, submitting estimates and quotes etc.  What materials will be used?  then allow a 10% minimum contingency for unseen issues arising for going wrong.  

Always anticipate a job will take longer than expected and do not assume that your client will respond to you promptly and provide all information needed to expedite a sale.

A clear contract is always recommended to mitigate any likelihood of confusion or possible conflict. Keeping a customer happy is much easier than dealing with an unhappy client and much easier than finding a new customer.  

A good customer experience can result in further work for the same customer or referrals from same.  Personal referrals are usually much better than cold initial enquiries.

STEP 4

CALCULATE YOUR WORTH

Having ascertained your costs and the time required, you need to determine how much you will need to be paid to make the amount you require to have a viable business.  If you are unable to make the profit desired to make your business sustainable you may need to reconsider your overheads or the time you allocate to a project.  

Be heartened that you will become more efficient and your processes more effective as you gain more experience and your knowledge grows. 

It is important that you do not undervalue your skills.  Where an individual living at home, whilst at college, may be able to undercharge, you should focus on the benefits you provide.  You may be more efficient thus your hourly rate is not comparable.  

You may provide additional supporting services or refer your clients to other service providers.  You can promote your experience, knowledge and longevity and assure clients you will still be around when the student has moved on when such prices are unrealistic when faced with open market overheads.

STEP 5

CONSIDER HOW AND WHEN TO CHARGE YOUR CLIENTS

Although we have largely focussed on hourly rates, clients may be concerned about open-ended hourly charges, therefore, consider alternatives to time-based charging.  You may provide a quote for a full project.

Consider if a project can be subdivided into smaller projects.  When considering such options, it is crucial you make it very clear the level of service being provided, and any limits imposed on any services offered.

Depending on your sector/market practice, you should ensure you are being paid.  It is not recommended that you undertake full projects without milestone payments during the process.  This is even more crucial with new clients.  

Where a payment is late or remains unpaid, you should consider refraining from undertaking further work. Again, this is a skill that you will develop as you become more confident in business.  

If you are asked to do a freebie for exposure or experience, always consider whether there is any real benefit to you.  If not, politely decline and make a counter offer.  If your client is not inclined to offer free or substantial reductions on their services do not undervalue your own.  

Quoting an unrealistically low price or even free may set a bad precedent should the customer make it know what they were charged to other potential or existing customers and that may ultimately drive down your prices or upset existing customer relationships. 

If your client is making a profit, then you should not be making a loss.

WORKING WITH/ FOR FRIENDS AND FAMILY

It is often said that working with, or indeed for, friends and family is not recommended however such a statement is not necessarily accurate.  Friends and family may have a wealth of knowledge and experience to share with you and you may also benefit from their extended social network in bot their physical and digital worlds. 

One caveat; a friend that expects you to work for free – is not usually a friend.

© JBE Business.com