When you were a kid, you may have had a lemonade stand. If you did, it may have given you a very simple taste of what running a business was like. It may even be why you entertained the idea of becoming a freelancer and working for yourself instead of for another company.
In your lemonade stand business, you created the product, and you added your services to it to deliver the product. You collected the money. You probably had positive cash flow, which undoubtedly was exciting. Maybe you dreamed of spending your earnings on comic books or candy or saving up for a new bike.
Thinking back on that experience, was it subsidized? Did you get any of the lemonade ingredients for free? Did you borrow the capital: pitcher, spoon, table, chairs, cash box? Did you think about how much to charge per cup? You probably charged what was your concept of the going rate at the time, maybe a nickel or a quarter or fifty cents. You may have gotten tips from friendly neighbors and passersby who couldn’t resist the adorableness of a budding entrepreneur.
It’s great that you had a good experience way back then. But things are different now. You really do need to figure out pricing with a more careful and calculated approach. You need to take into account all your costs, including your time. Sorry to break it to you, but your current business is probably not as cute to your target market as your lemonade stand business was to your neighbors. Your current marketplace is tougher. It expects more from you.
The marketplace expects your products and services to deliver value. Your prospects can’t know the value you bring unless you communicate effectively. What you charge is actually itself a statement of value. Consumers often perceive a more expensive product to be more valuable. But if we price too high, we turn some prospects away. Finding the sweet spot can seem like a daunting challenge and a stab in the dark. However, when you know these six steps, pricing becomes a straightforward process.
Step 1: Understand your customer
When you sold lemonade, nearly everyone in your neighborhood was a potential customer. Who doesn’t like lemonade on a hot summer day? Your target market now is probably much narrower. Understanding them and their buying criteria is an important foundation for determining the prices of products and services you are selling to them.
Step 2: Research your competition
Understanding who else is supplying what you offer and what they are charging is important. When we are in creation mode our motivation may be to just get our work out there. But if not enough people are buying, it may be that our assumptions were unrealistic.
Step 3: Positioning
The fact that you could sell more lemonade when you were an adorable child demonstrates that positioning matters. The buying experience that you deliver adds to or subtracts from the perceived value of your product or service.
Step 4: Choose a Pricing Strategy
Depending on your industry, niche, target clients, and goals, develop a pricing strategy. Most strategies are based on standard pricing models. Will you base your prices on the costs to provide the goods or services, plus a percentage so that you are above break-even? Will you select a price based on what others are charging for similar offerings? Knowing the common pricing models can help you figure out what is right for your offerings.
Step 5: Keep an eye on your prices
If your products are flying off the shelves or your time is fully booked or over booked, maybe you are undercharging. If the opposite, maybe you are charging too much, or maybe not enough of your market knows you exist. Prices for new clients are not set in stone. Monitoring data on pricing and sales will help you decide if you need to make a change.
Step 6: Raise or lower prices as needed
Once you decide to change your rate card, how you communicate these changes matters. The more established you are, the more it matters. Consider the likely impact of your changes and strategically buffer any negative effects.
Give careful thought to your pricing scheme with an eye towards maximizing your income in both short-term and long-term. By taking these six steps, you will develop a pricing plan which reinforces your business goals.
Interested in learning more about pricing at a deeper level?
