Setting Prices for Your Product or Service
Setting a price for your service or product can be one of the toughest parts of opening your own business. Much goes into the process, so you need to spend quite a bit of time doing some research, comparing your product to others, and analyzing the costs associated with designing and manufacturing the product or running the service before you settle on a final price.
Below are a few tips to help as you set about pricing your product or service:
1. Research, research, research. I cannot stress how important the aspect of research is when opening your own business. When dealing with setting prices, you should be calling around and pricing all of the various services and products that are like yours. Compare what is offered, the quality of the product or service, how the person is setting up the business and the costs associated with that (home or leased office space, other employees or on their own), and how the business is alike or different from yours. If you need to, call and act as a customer to get the fine details that you´ll need to set your own price.
If you are offering a service, compare the cost of that service to others in your area. In some locations around the US, such as in Los Angeles, a service might cost more than it would in another part of the US. You want to offer a fair rate for your service to those people most likely to purchase your service, so if you set a rate for your service equivalent to one in another part of the country but too high for where you live, you are putting yourself out of business.
2. Create a detailed spreadsheet listing all of the costs associated with your business so that you can see what you need to bring in each month to cover your expenses. If you are creating a product, list the costs associated with designing and manufacturing each product. If you are renting space, list all of the costs associated with this, including electric and phone bill.
3. Don´t under-price. Oftentimes new business owners will charge less than the going rate for a product or service so that they will seem more appealing to the consumer. This can fail if you are not careful. First, you want to remain in competition with the competition, and if you set your price considerably lower than like-minded companies, you will not seem on the same playing field with the competition. You don´t want to scare off potential customers by setting a price so low that the potential customer thinks something may be wrong, faulty, or "cheap´ about your service or product.
Also, if you under-price your products and your costs of manufacturing or running the business goes up unexpectedly, you will be cutting yourself out of money. This could really be a problem if you price so low that you don´t give your company some wiggle room. Consider this: You rent a building and in a year the price of the lease goes up two hundred dollars a month. This can be a huge change for someone who is not charging enough for the products or services.
Remember, you can always lower a price, but you should never increase one once the price has been set.
Below is more information about pricing your product or service:
https://en.wikipedia.org/wiki/Pricing
https://www.entrepreneur.com/article/0,4621,310610,00.html
