Although it is a humorous line in the commercial, as a new business owner, it seems as if clients are seriously asking that question. This is most often when your earliest customers may be family and friends. There is a temptation to try to offer your goods or services at a lower price to grab attention or to account for limited service record or experience. However, you are a business owner, and not only must you cover your overhead, but you do need to also earn a worthwhile salary. Altruism and “hook-ups” do not pay your expenses. So how do you go about determining what is a fair value of your goods or services as a new business owner?
Knowing how much to charge is one of the toughest decisions for any would-be entrepreneur. Understand, there’s no fixed formula to determine what is the correct amount that you should be compensated for your services. It is imperative as a new business owner to research your industry of interest and find out what your competition and others are charging for their services or similar services. You do not want to charge too high or low and price yourself out of the market even if you haven’t established any credentials or expertise.
How low can you go? You may think that having lower prices to grab attention to account for a limited service record or lack of experience is a good way to acquire new business but this can back fire in your face. The cost of your services should depend on how much time, effort and value you place on your work. Ultimately you want your prices to reflect the work that you put in and show your clients and prospective clients that they will be paying for the results that they would like to see. In planning your pricing structure, try to get the lowest and highest prices in your market and determine the features of your services. You can call various companies as if you were a customer and inquire about the services that you are planning on utilizing for your business, making sure that you ask what you will be getting for your money.
Now that you have done your research on competitive pricing, you should be able to determine your rates based off of the expected time that will be spent and your expertise. Once you have discovered your rates you now are faced with the challenge of defining your annual pay along with your overhead and operating cost. This can be what you earned for doing similar work when you were an employee, what other employees earn for similar work, or how much you’d like to earn. Overhead includes all of the costs you incur to do business as well as the cost of your fringe benefits, such as medical insurance, disability insurance, and retirement benefits, as well as your income taxes and self-employment taxes.
And last but not least have a back up plan. In this economy keeping your head above water is very hard, having a survival plan in case of emergency is important. In certain situations such as market decline or market saturation, you must temporarily set a price that will cover costs and allow you to continue operations. You want your business to be able to sustain a crisis as well as be able to maintain the same prices or somewhere close to the price range you originally forecasted so that you will be able to stay a float unless you can survive on Gum.
Now you should be able to prove to individuals that you are serious about your profession and will not perform any task for less than what your products and/or services are worth. So the next time a family member, friend or potential client poses the question “Would you mind if I paid you in gum?” don’t chew them out just remember the steps above.I would like to thank Christopher Ervin for being so influential in this recent post, you are always an email or tweet away be sure to follow him on Twitter @CPRDOC