How Do You Decide What To Charge? | Pricing

by ACE admin on July 9, 2013

in Business Articles

How do you decide what to charge? One of the most fundamental things you need to know for your creative business, is what price you will put on your product or service.

Now there are a number of considerations that should help guide you through the minefield of pricing.

First of all, it needs to be worth your effort and time. So if you are making handmade goods, your price should ideally incorporate the cost of the materials, the cost of your time to create it, and an amount of profit.

This may at first seem like it throws up a price that you may consider too high, but a key point to remember is that you are not the person who will be buying, so your price sensitivity may not be aligned to that of your prospective customer.

Another important point to remember, is that when you are setting prices, they are not set in stone, and should be regarded as fluid, allowing you to test and adapt. You can set a price to start off with and measure the results you get, allowing you to decide whether there is room to charge more, or whether you would be better off charging less.

Pricing tip: it is far easier to lower your prices than to raise them, so do consider that when you start-up!

Also, think about the knock-on effects of the prices you set.

Higher prices may indicate greater value but you may find it trickier to sell as price might become a barrier to sales.

Lower prices mean that you will have to sell a lot more to turnover the same kind of cash, but getting customers to try you out will be easier as there is less ‘risk’ or financial outlay to them.

So the benefits of  charging a lower price and getting more customers through the door, or onto your website, may be that you have a better level of trading, and are kept busy. Whereas a higher value retail item or service, might provide a good pay-off, but there may be longer periods in between each sale.

This may still be beneficial to you, as you are effectively charging more for doing less, and freeing up time to work on the business, rather than in the business. However, less customers also mean less recommendations possibly, because you are being exposed to less people, so the pool of people who may have heard about you, your products, or services may be reduced.

There are of course merits to both tactics.

Let’s take a look at an example:

Say you are a hairdresser.

Option one is to charge everyone £10. It is a low price, quick service. You will get customers through the door just because you are cheap enough to try on impulse.  This would typically be a no-frills experience.

Option two is to be more of a service led hairdresser. Probably a nice setting, offering your clients refreshments and extras. You probably charge around £100. Again, you still get customers through the door because your reputation says that you are worth that amount, and so people will pay it.

Option three is be right at the top. Your clients possibly pay thousands of pounds to get you to come to them, wherever they may be in the world. This is a premium service, and again, your reputation will be paramount. You may only have a handful of clients who can afford this, but they are loyal, and keep coming back because you make them feel that is money well spent, and that you are better than any local alternative they may find.

So that is three tiers of options. It is up to you to decide which space you want to inhabit and which will ultimately be the most profitable for you.

Let’s say you make something:

Option one, as above, set a low price.  Consider, will you be able to sell enough to make decent profit overall?

Option two. Same as above, a reasonable price, but perhaps charge an extra amount to personalise the product for your customer.  You should have already factored in the base price of all your materials and time etc in price option one, and this is a chance to mark it up, providing your standard product but taking you a small amount of extra time to customise and personalise.

Option three. Set a higher price and offer to make an entirely bespoke item. Here you can charge a premium as they are getting a completely unique item.

So, I hope that has given you some food for thought on how you decide how much to charge and product pricing!

 

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