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As a two-time business owner, I have billed both for individual products (in my CLE business) and my services (consulting business). My personal experience along with a reasonable amount of research have helped me make very important decisions on the value I place on the consulting services I provide. I provide this kind of research and diligence to my clients as well.
There are several factors to consider when determining pricing for products and services. A few of the most important factors are:
- Cost of Goods
- Customer Profile
- Competition
- Experience and Reputation
Cost of Goods
In order to price a product or service appropriately, we need to first understand how much it costs to create and deliver the goods. If we’re creating a tangible product, we need to understand the cost of materials, labor, and shipping. If it is a service we are offering, knowing the amount of time it takes to create and deliver the service is a basic requirement for a profitable pricing strategy. With both products and services, we also want to consider the backend and infrastructure of the business itself like technology, equipment, marketing efforts, and any other overhead costs which are needed to set up, manage, and promote the business goods.
Customer Profile
Who is your target customer, why do they want or need your products and services, and where will they use them? Demographics, like such as “age, sex, education level, income level, and occupation”,as well as psychographics, like “habits, hobbies, spending trends and values”, tell you “who” your customer is and “why” they buy. Further, knowing where your customer resides and/or uses your products is important because varying economies have an impact on consumption and competition.
Competition
Knowing how the competition prices out their products provides a range for your own strategy. The next steps are to understand what makes your product or services different and how the customer-base values those differences. Thorough research on your competition helps you position yourself appropriately for success in marketing, overcoming objections, and closing sales.
Experience and Reputation
The time invested as a start-up, growing business, or a well-established organization is a good gauge for the temperature of relationships, network, and customer service you have built and established. Time allows you to build a network, you’re your goods, establish a reputation, and deliver customer service that should lead to industry recognition, referrals, and repeat business.
Calculating the basic cost of your products and services is a necessary starting point for determining your own pricing strategy. Defining your customers’ profile will help you understand what the market is willing to pay for your products and services, and researching the competition will show you where and why you fit in. Finally, adding the value of your experience and reputation in the market will allow you to pinpoint your target pricing range. Using the formula and solid research of Cost of Goods, Customer Profile, Competition, and Experience/Reputation will provide a fair, accurate, and defensible price point for your products and services.
