How do you decide what price is right?
1. Based on Expenses and Desired Profit
One way to price your work is to think about how much time and money it will cost you to produce your service or product, and how much money you want to make off of it.
Let’s say it costs you $15 in supplies and 15 hours of time to create your product. First you must ask yourself: How much is each of your labor hours worth? Maybe you want to make $30/hr… $30 x 15 hours = $450 in labor for this project. Great. Now you can add in the $15 you spent on supplies, and you’ve got a grand total of $465. At this number, you’re breaking even. But what if you want to make some extra profit? Maybe you’ll charge $500 instead, so that you can make 35 extra dollars of profit to put toward running your business. If $500 is really low compared to your competitors, maybe you’ll charge $800 and make $335 in profit to put back into your business.
Note: Tracking your time is critical for pricing your product or service. To understand how much you should charge for labor, you must understand how much time you are actually spending when developing your product or service.
This method helps you to understand the minimum amount you should charge (all your expenses + the profit you desire). But, #2 helps you to understand the wider range of pricing that might be acceptable for your creative business.
2. Based on the Competition
What is your competition charging? What value are they providing for that price?
For example: If the average price your competitors is $500 dollars, that might be a good sign that you should charge a price in somewhere around $500… UNLESS you provide an additional value that is worth paying extra for. You’ll need to conduct competitor research to understand what your competitors are charging and why. Doing this will help you to better understand the range in which you should price your product or service. However, #3 will tell you the maximum amount you can truly charge.
3. Based on What Customers Will Pay
At the end of the day, you can only charge as much as your customers will pay. When you tell a potential customer that your product or service is $20, how do they respond? If they seem too pleasantly surprised, maybe you’re not charging enough. If they seem too unpleasantly surprised, maybe you’re charging too much. Obviously, this form of measurement is vague, but its all about trying to gauge how your customers, or potential customers, feel about your pricing. Want to know for sure? Try asking! Consider a pre- or post-purchase survey, or even asking them in person.
At the end of the day, your pricing should reflect the value you offer. Make sure to understand your customers’ “pain points” and how you help alleviate them. As you test your creative business model, listen to the response of your customers and make adjustments accordingly.
Challenge: Talk to 5 people who have purchased or may be interested in purchasing your product or service. Ask them how they felt/feel about the value they received/will receive for the price they paid/will pay. Record their answers and think about how you can use that information to create or adjust your pricing strategy. Good luck!
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