When you’re in business for yourself, you’re responsible for paying yourself, which means you set your own fees — this is the good news and bad news of owning a small business.
Let’s start with the bad news: you don’t want to set your prices so high above the market rate that you repel the customers you’re working so hard to attract, and you also don’t want to set your prices so low that you’re practically working for free and become an accidental for-profit-turned-non-profit.
Here’s the good news: there are people out there willing to pay for your time and services. Yes, it’s true that folks are willing to part with their hard-earned bucks in order to receive the highest quality they can afford.
So how do you actually find a way to charge what you feel your services are worth?
Do the math
The first place to start is to consider your cost of living. Estimate out how much you need to make in order to cover your monthly bills and expenses, including items like health insurance, taxes, savings, and retirement—that number needs to be the guiding figure towards your monthly income. Don’t forget to factor in the actual costs of running your business: while some of that might be considered a tax write-off, the rest isn’t, and somebody’s got to pay for it.
Now that you’ve done your addition, it’s time to divide. Take that big fat number that represents one month of spending and divide it by the number of hours you actually work per month. Got it? This is your hourly rate. Remember, premium services go for premium prices.
Here’s an illustration for you visual learners out there:
Monthly bills + expenditures + operational costs/monthly hours worked
Once you are confident that your rates are fair and can produce the right amount of income for you, how can be sure to earn them? It always go back to your audience. Science fiction and fantasy readers aren’t likely to find themselves browsing through the historical romance paperbacks, so it’s a good thing those romantic paperback writers market to another audience. Likewise, if you catering to the wrong audience, you won’t have any buyers.
Tips and suggestions:
- By regularly offering discounts, you will develop a regular customer base, all right—a customer base comprised of people who won’t pay full price for your services.
- Target those in your market who have more money to spend. This should always be a given, but it’s hard to see when you’re just starting out (or if you’ve always priced low just to attract customers).
Your ideal customers need to see the value of your services or product. How will you help them meet their goals and needs, and what is so special about what you’re selling that the price makes it worth it? Take the time and brainstorm some very specific answers to these hypothetical questions. Not only will you have a response at the ready, but you’ll also build confidence in yourself, your business, and the fact that you are charging the proper rate. Remember, you need to become the—as in The—expert on your business, your product, ad your field. Customers are looking for solutions and outcomes to their own unique, specific problems.
Know your whole market
If you’re out shopping for a pair of shoes, you have choices:
- Go the discount store, drop a very few dollars, and bring home a pair that will last you for the season…and repeat process frequently
- Going to the higher-end shop, dropping some serious coin, and bringing home a pair of fine Italian leather shoes that will last you forever, if you take care of them properly.
You don’t have to be in the shoe business to catch my drift here: exploring your whole market gives you the customers’ insider view. You’ll know what the “discount” brand looks like as well as the primo product—and you’ll know price points for all of it. This can help you improve your own services and products and really help position you to take the lead in your own market.
If you’ve ever visited an outdated website, you might have wondered about the business itself: how are their services? Do they just not care about their site? Maybe they don’t have enough business to warrant maintaining a web presence?
In case you didn’t already known, looks matter when it comes to your web page. The style of your webpage, the quality of your images and your content, and the ease of site navigation all contribute to your impression.
How does this pertain to the topic at hand? Simple: if you’re charging champagne prices, you don’t serve cheap canned beer. In other words, if you’re going to be an expert who delivers the highest quality in products and services, your website has to dress the part.