How much to charge
The prices you charge for your goods and services are, naturally, an essential component of the way you run your business. So what’s the right amount to charge? This isn’t as obvious as it might seem, but if you’re not sure how much to charge, we’ve collected some smart ideas which could really help.
When deciding how much to charge, many small business owners overlook the obvious point of profit margins. The first step in establishing how much to charge is what your overheads are – when you make a sale, what are your costs for materials, staff, production equipment and so on? In addition to these, there are fixed costs for elements like premises, business rates, heating, lighting, electricity… as you can see, you can’t base how much to charge simply on what you think is “a good price” for your products and services.
You must also look at how much similar businesses charge. The nature of your business plays a role here. If you’re selling a similar product to other companies, you may want to undercut them in the hope of attracting more customers. This model works well for product-based businesses, as there’s already a perceived value attached to the items, and you can use this as part of your research into how much to charge.
On the other hand, you may want to position your products and services at the luxury end of the market. This influences the process of deciding how much to charge, but in a different way. If you’re wanting to attract an affluent, money-is-no-object clientele, you may actually need to put your prices up, as cheap products will be linked in your clients’ minds with lower quality – not what you’re aiming for.
In choosing how much to charge, it’s also worth considering how you want your business to grow. Low introductory prices can be a good way to raise your profile and attract buyers (not to mention profit) before your “proper” pricing structure kicks in; however, you run the risk here of alienating customers if they become used to lower prices. If your products consist of rare or one-off items which aren’t going to be frequent purchases, it’s essential that you consider cashflow in your business plans. Even if your sales have huge profits attached to them, are you going to make enough of them to prosper, or are they going to be too few and far between to let you run your business confidently?
Working out how much to charge isn’t as simple as it might appear, so it’s important that you take the time to get it right. Do your research, understand your market, and get in touch with Agenda now for more advice how to create a pricing structure that leads to healthy profits!