Oh, pricing. We love you, but you drive us nuts!
At every stage of business ownership, you'll have to figure out your pricing structure. Whether you're brand new, launching a new product, or increasing the price of your services, deciding what to charge is complicated.
The formula itself is actually pretty simple. The tricky part is getting into the right mindset. No matter if you're broke or Kanye-rich, you'll encounter money mindset blocks that keep you from making as much as you should.
Here's how to figure out your pricing and breakthrough any blocks you might encounter along the way.
My Standard Pricing Formula
For product-based businesses, I recommend this simple formula for figuring out your pricing:
COST (how much it costs you to acquire/make the product)
+ LABOR (any labor required to create the product and get it to your customer)
+ PACKAGING (boxes, labels, wrapping paper, stickers, etc.)
Multiply this total by 2 for your wholesale price.
Multiply it by 2 again for your retail price.
Easy peasy! Now, let's get into the mindset blocks that pop up along the way.
5 Things to Help You Bust Mindset Blocks When Figuring Out Your Pricing
Ever find yourself staring at an Excel sheet thinking, "Who am I to charge these prices?" We've all been there. Here are a few things to consider when you hit a mindset block.
1. Know your worth.
Sure, others probably offer the same service or product you do. But they're missing one thing:
What sets you apart from the competition? What do your clients get that no one else does? Maybe it's your unique point-of-view or the systems you've created for your clients. Maybe it's the materials you use or the experience of opening a package from your shop. Whatever it is, hone in on that.
The more value you can provide, the more people will be willing to pay. Take social media marketing for example. To you, an hour of your time might not seem like much. But to your client, how much value do they get out of an hour of your time? They might sign on three more clients because of the caption you wrote or sell ten of their products through the ads you ran. Factor in that value, not just your time and price of materials.
2. Avoid the lowest price strategy.
If being the cheapest option were the best option, Louis Vuitton would really be hurting for cash.
In all seriousness, setting your prices super low is rarely the right move for your business. If your target market is hardcore budgeters, then a low price might work. In any other market, low prices undercut your hard work and worth.
Remember: If you can prove the value of your product, your ideal clients will find the space in their budget for it. Consider Starbucks. We all know we could make a cup of coffee at home for pennies, but we just love a sugared-up frappuccino. We don't buy from them because they're cheap. We buy from them because the price is worth the value.
Setting your prices too low can also scare away your ideal clients. If I'm shopping for shoes and come across a $15 pair, my first thought is going to be, "Oh, those won't hold up. They're too cheap." If those shoes were priced a little higher, I'd be more willing to trust that they're high-quality.
3. Understand the demand in your market.
Unsure how to price your product for your target market? That's where market research comes in. The best way to figure out how much your market is willing to pay is to understand the demand. There's no sense in selling fishing poles to vegans, but avid fishermen? Now, they'll be willing to pay!
Before you set your prices, conduct some market research. Create a simple form, join some Facebook groups, and ask questions. There's absolutely nothing wrong with asking, "How much would you be willing to pay for ______?" Take that number into account when figuring out your pricing. Just don't let it entirely dictate how much you charge. You have to factor in your unique value!
4. Write down your profit goals.
Imagine you set your prices randomly. You work hard selling tons of products, only to realize a year later that you've barely turned a process.
Instead of winging it, write down some solid profit goals for the next quarter or year. Then, factor that number into your prices. Being a business owner is, first and foremost, about making money. It's great if your business makes a profit, but you also need to take money home! Figure out how much you want to take home, and work backward from there.
5. Know your why.
This is vital for every part of your business. When you know your why - the reason you started your business, the reason you work so hard - you won't settle for less than you deserve. Every penny you make gets you closer to that why. So why not charge what you're worth?
Need help figuring out your pricing? Look no further!
No one starts a business knowing exactly how to manage their finances. That's why I started The CASH Club, a community where small business owners and side hustlers learn how to manage their own finances. You can learn how to tackle your taxes, price your services, and run an organized business. Come join us!
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