If you ask any “wet behind the ears” entrepreneur their pricing strategy, they will likely say one of three things:
- They copied or averaged what their competitors charge to create their prices.
- They picked a number that sounded good.
- They make it up each time.
I do hope that you can see why none of these are a sound pricing strategy.
The truth is, no one can tell you what to charge and you can charge whatever you’d like as long as you:
- Have results (success stories, case studies, testimonials) to support the price.
- Have articulated the problem you solve in such a way that your ideal clients see you as the only solution to the problem they are ready to pay to solve.
I love to use a bottle of water as my example.
If you were to purchase one from a Dollar Store, it will cost $1. If you purchase it from the movie theater in your city, it will cost any where from $3 to $5. And, if you purchase it from the sports arena or stadium in your city, it can cost as much as $8. And, if patrons are thirsty enough, they will buy the water, no matter the cost.
This has got to be the most popular question we receive at Incredible Factor TV, which is why I wasn’t surprised when Nicole asked it this way:
“Hi Darnyelle, I have many ideas for business. I started a business that catered to multimedia, but never receive the pay I deserve. How to move forward to ask for what I am worth?”
Check out my response to her question in this week’s episode of Incredible Factor TV:
As I share in the episode, pricing is one of the most popular topics in business today but it is also one of the most misunderstood. And sadly many people struggle with how to price. To that I say, you are priceless but your work is not. The only way to price is so that you build a business that serves you. And the only way to have a business that serves you is to charge more than it costs! I know it sounds radical, but what would happen if every transaction in your business was a profitable one?
The fact of the matter is this – you determine what your clients pay you. Period. So, if you’re not being paid what you are “worth,” it’s because you haven’t required your clients to pay that amount. And you can shift it as soon as you believe in your heart and mind that you are willing to ask for what you need based on the value you bring to the table. Before you set your price, here’s what you should consider:
- Direct Costs – these include anything that you have to buy to directly perform the service
- Overhead – examples include rent [or percentage of your home’s mortgage used for business activity], utilities, internet, phone bill, business insurance
- Other General & Administrative Expenses (should be 10-20% of total charged) – this includes what you pay your team that supports you, etc)
- Business Investments – what will you need to invest into your business in the next 3, 6, 9, 12 or more months and is that considered as you set your price?
- The value you represent in the next 5-10 years. This is the part that most people forgot to include. Yes, today you are performing a service, but if the service you perform solves a problem, what will that be worth over the next 5-10 years?
- How much profit you want (based on your life plan). That’s right, as a part of building a business that serves you, you have to assess the plan you have for your life. While I do believe that you will have to make a short-term sacrifice in order to experience long-term reward, being very clear about what you’re desiring for your life long-term is a total consideration as you price your services.
- Your time spent performing the service. When you are working for a client, you can’t be marketing to acquire another one, so you need to consider that in your formula as well.
The formula looks something like this:
Direct Costs + G & A Costs (General & Admin) + Overhead + Base Earnings Target (* # of Hours) + Profit %
To be honest, to bridge the gap between paid clients and a profitable business, there’s so much more to know. Consider joining us on tour beginning March 21, 2015 to learn more and make the shift in your business. To learn more visit http://www.PositionedToProfitTour.com
Now I want to hear from you, what’s your two cents?: How do you determine your prices? Is there anything else you’d like to share with Nicole?
©2015 by Darnyelle A. Jervey. All Rights Reserved. Darnyelle A. Jervey, MBA, The Incredible Factor Business Optimization Coach and Mentor, is the founder of Incredible One Enterprises®, Incredible Factor University® and the Leverage Your Incredible Factor System®, a proven step-by-step program so you experience financial and spiritual abundance in your life because of your business. For more information and a FREE audio CD “7 Critical Mistakes Even Smart Entrepreneurs Must Avoid for Clients, Connection and Cash Flow!” just fill out the form below.