How much should you charge? That’s a topic that’s crucial for both new entrepreneurs and seasoned business veterans alike: how to figure out your product and service pricing? It’s a question that frequently puzzles new business owners, yet even those who have been in the game for 5, 10, 15, or even 20 years must periodically reassess their pricing strategies. The fact is, a well-executed product and service pricing strategy can revolutionize your commercial landscape.
In this post, we’ll delve into five critical aspects to consider to be able to determine your product and service pricing.
Our goal is to help you not just survive but thrive in your business, and that means achieving a healthy profit margin. The aim is to strike a balance – charging enough to provide valuable offerings to your customers that they’re willing to pay for.
Remember, running a successful business is not just about fulfilling your passion or making the world a better place. It’s about creating a sustainable model that allows you to serve the world in a mighty way.
1. Product and service pricing in accordance with your target client
Who is your target client? Why did you choose that client? This is mostly a marketing question, but also a financial one as well. It makes a big difference in terms of how much you can charge. If you sell a lot of different services or products, hone in on your flagship offering as you ask that initial question. Basically, to whom are you providing value?
2. What do you need to charge in order to attain a net profit of 15% or 20%?
After delivering your products/services and paying down all your expenses (except taxes), how much profit are you left with? Your goal is to charge enough so that you can net 15-20%. For example, if you make $100,000 per month in sales, you’ll want to have $15,000-$20,000 left over after expenses.
3. Analyze all the products or services you sell and figure out which ones are actually making you money.
Now, hopefully, they’re all making you some money. But when you really dig deep, you might find products/services that don’t make you any money. Or maybe there are a few items that make all the money for your company. So do the necessary research to discover where the money is coming from and make changes to your product line as needed.
4. Look at what the market will bear for your products/services pricing.
What does your competition look like? Is it fierce, or is your niche so unique that you have the ability to charge a higher products and services pricing? Basically, you want to find out what the average consumer is willing to pay. Oftentimes, businesses do this to begin with, and that’s fine. But I prefer to figure out what it’ll take for you to actually make money first. Either way, be sure to do your market research.
5. Based on all the information you’ve compiled in the first four steps, decide on an action plan.
You know your target market and the level of competition you’re facing. You know how much you need to charge in order to net 15-20% profit. You’ve figured out which products/services are money makers and which are not. Now, evaluate your business plan. What changes are needed so you can charge the appropriate amount?
Maybe you need to add more value to your products/services so you can charge more. Maybe you’ll want to improve worker efficiency or decrease costs. Or perhaps it’s simply a matter of dropping the low performers from your catalog. Whatever your plan may be, just remember that you’re shooting for 15-20% net profit.
In conclusion…
Product and service pricing isn’t just about covering costs and making a profit. It’s a complex process that demands a deep understanding of your target customer, a thorough financial analysis, and a strategic perspective on your product mix.
With careful planning and assessment of market demand, it’s entirely feasible to achieve a net profit of 15-20%, while delivering significant value to your customers. Ultimately, it’s about creating a sustainable business model that not only allows for profitability but also enables you to make a meaningful impact on the world. By applying these principles, entrepreneurs can ensure they’re pricing their products and services appropriately, paving the way for long-term success.
You feel that you still need to learn more about this particular topic. Do not hesitate to reach out to our team of experts. We’d be so happy to help you with more insights.
Have a better than amazing day!
