It is a universal question for all small business owners – how do I set my prices and how to make sure my products and services have the right value so that I can make a real living?
But it’s difficult for us to do that alone. All too often we work hard to deliver products and services only to feel that the financial result is a little underwhelming.
This How To Guide is not really about setting higher prices but more about recognising the true value in what you offer and learning that that value has value. If the work is good, the money will follow as they say!
So how do you know if you’re valuing what you do enough to encourage customers to see that value and for you to receive the income that your hard work deserves?
Here are some factors to take into account when you’re thinking about your value and how to set your prices to build a better income.
- Your first port of call is to really understand what it COSTS (cost analysis) to deliver your product or service. It’s all too easy to forget the added extras, money invested and your time which results in undervaluing what you do. If you do this calculation first it creates the solid foundation for truly understanding your value to your customers.
- How many years of experience and how much skilled expertise do you bring to your business? This includes previous careers where you learnt core skills to the years when you practiced at home or upgraded your learning. If this include re training, courses or CPD (continued professional development) add that in too. You may not have a number value for this but write it down anyway.
- How much preparation, practice and research do you put into your business? This could be for individual products or overall in the business.
- How long does it take for you to make, buy or source a product or develop a service from idea to website?
- Now that you have the amount of time involved, imagine paying yourself a wage for that – how much does it come to (even if that were the minimum wage it would be something!)
- Think about what you have had to buy in to be able to deliver your product or service. This includes raw materials, books, stationary, wrapping material, digital software etc etc.
- How much does it cost you to market what you do or sell? Include website maintenance and initial investment if that was fairly recently. Think about the time invested in social media or content creation.
- You should now have a pretty good idea and a long list of numbers, hours and years to absorb. This is how much it really costs to deliver your business.
- Think about the value of what you offer to your customers (value proposition). In the case of products, list all the things that are special. Include things like if it’s British, ethically sourced, handmade, beautifully wrapped, recycled, unique, using artisan skills etc etc. In the case of services then think about the reviews your receive, what people say about your business and how pleased they are when you’ve helped. Think about what your services ADD to their lives – do you make life easier. Do you solve issues quickly? Do you provide confidence and a sense of wellbeing? In both cases also think about your story. It’s unique and important. This all has huge value.
- Think about your market (brand positioning & operational efficiency). Traditionally small businesses start out feeling that they simply have to compete with their market as is. For example, they might try to match the price of their cake with the price that someone could buy it at Waitrose. How many times have we seen a competitor’s pricing and felt we should lower ours to match. How many times have we offered a freebie or discount just to get business? It’s important to gather together all your data from above and work out what it really costs you to deliver your business and create a price that makes a profit on top of that. You may need to moderate this slightly to fit your market – if your cake is 10 times the price, it may scare people off. However, if your cake is a little more expensive but it’s clear to the customer that it’s handmade, you went to a French pastry chef to train, that you only use organic ingredients etc etc then people will pay that without question. If you can’t be competitive and realise the value of what you offer, you now also have the data to go back through to reduce costs. Do you need to source anything more cheaply? Can you reduce your time spent on a process. Can you deliver online only to reduce value costs for example.
I hope that at the end of this little How To Guide, it has given you enough food for thought to really value what you sell and to price it according to that value and not trying to match big company prices or discount out of a lack of confidence. IF you can do this well then you can watch your value increase along with your income.