Pricing Your Product or Service
One of the hardest things for any businessperson to determine is how to price their product or service. In addition to the cost of doing business, you have to put a price on what your time and expertise is worth. Let’s start with some basics.
What are others charging for this same type of business? You could call them and just ask; some people will share information with a competitor, some won’t. Search the internet to see if anyone else is doing this and if they post their prices.
Whether or not you have direct competition, the next step is to know what it will cost you to do business. Here you have direct and indirect costs. The direct costs are what it will cost you to do a particular client’s job.
A woman recently asked me about a personal service business picking up dog “droppings” in people’s yards for them. In that case, she needed to ask herself how many dogs she had to clean up after? How often? Would she work holidays and weekends? Will she charge more for “pick-up” on weekends and holidays? How will she dispose of the “poop” she picks up? Will there by any cost involved in the disposal?
Indirect costs include your overhead to maintain a home office. Telephone, computer and printer, office supplies, etc. One caveat here – don’t discount your services just because you are home-based. You may hear from a client that you should be cheaper because you don’t have the same overhead as a commercial-based business. My response to that comment has always been “you’re not paying for my location, you’re paying for my expertise!” The cost of doing business is just one of the many factors in pricing and, if your indirect expenses are less, you can take that in to consideration when setting your prices.
Once you have established your direct and indirect costs, you can begin to break out your pricing by job or customer. Going back to the “pooper scooper”, how many yards could she clean in a day? Bigger yards will take longer than smaller ones. Bigger dogs may take longer than smaller ones. Some clients may be farther away than others which will create considerable more gas usage and wear and tear on the car.
Once these factors are all accounted for, you are ready to set your price. Once you have a preliminary figure, you might want to test it out with some potential customers.
Something else to consider is a written contract or agreement with your customers. When things are spelled out for both parties involved there is less chance of a disagreement or misunderstanding later. Make sure you set up a regular schedule and time to do your invoicing. Your invoice should clearly spell out your payment policies such as discounts for prompt payment and penalties for late payment. You should also note whether or not you accept checks or credit cards. There is a cost to accepting credit cards. Make sure you know what those are and include them in your cost of doing business figures.
