The question I have for you today is this: how much should you charge for your products and services?
This is a question that certainly comes up for newer business owners. But at the same time, if you’ve been in business for 5, 10, 15, or even 20 years, it’s still important to routinely reevaluate how much you charge for your products and services. Doing so can absolutely transform your business. So let’s look at 5 different things as we attack this question:
1. This is mostly a marketing question, but also a financial one as well. Who is your target client? Why did you choose that client? 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 in deep, you might find products/services that don’t make you any money. Or maybe there’s 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. What does your competition look like? Is it fierce, or is your niche so unique that you have the ability to charge a higher amount for your products/services? 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.
Listen, I know you’re passionate about what you do. You have a mission and you want to make the world a better place. But you have to charge appropriately. You have to make money in order to serve the world in a mighty way. So go out and take action. Have a better than amazing day.