Setting prices on your work is hard, particularly if it’s creative work, anyone who has ever had to price something out knows that. It’s tough to figure out what’s fair, and what’s necessary, and what’s going to make the product sell. Sometimes it’s seems like it would be easier to allow the customer to tell you what they want to pay, but that method can often lead to a nice home in a box under a bridge. Often people set prices lower than they should because they think their work is “only a hobby” or “I couldn’t possibly charge that much!”. There are a ton of reasons why setting prices is complicated, and sometimes frustrating and occasionally scary. There are also some things you can do to make the whole process a little bit easier.
The first thing you need to do is the math, which isn’t always fun, but is a necessary first step. What you’re figuring out is how much you need to make, so there are lots of numbers to gather and compute. Take into account the following:
- What do you need to live – this means what do you need for food, shelter, clothing, transportation, various insurances like auto and health. How much do you want to have in the bank to cover emergencies? In other words, what sort of wage do you need to pay yourself in order to live with at least a basic level of comfort and security?
- What do you need to keep your business running – What’s the cost of your rent or mortgage? What about electricity and heat? What will you need to pay for business insurance? How much is marketing and sales going to cost you? If you have employees, they show up here too, including things like their health insurance. Basically, what do you need to make your business go?
- What supplies do you need and how much – How often do you order supplies? What percentage do you keep on hand for unexpected orders and overage or mistakes? How far out is your production calendar booked, and what supplies in what amounts are you forecasted to need? Do you have terms? Do you charge orders to a credit card? When do your bills come due?
Once you’ve done your calculations break the number down in whatever way you like. You could come up with a monthly figure, a weekly figure, a daily figure or an hourly figure. What you’re looking for is some number and some period that can be a benchmark for how much your business needs to bring in.
Now that you have a number, the next thing to do is divide that number by all the products you offer. Obviously, different products will have different price points, and some products will account for more of your revenue than others. The goal is to put a tentative price on each product you offer, based on the percentage each product will contribute to the total revenue you need to make.
Once each product has a tentative price, the next thing to do is the research. This is where you get online, talk to friendly competitors, ask people in Facebook groups or on forums, and generally gather as much information as you can on pricing in the product categories you’ll be offering. Obviously, this research should be tailored to your market. If you have a brick and mortar store and you’ll be selling in one city, concentrate on pricing there. If you’ll be selling only online, look at who your competitors are in that space. It isn’t enough to gather numbers, those numbers have to be specific to the products you want to sell and the markets you’ll be selling in. Be sure to compare apples to apples.
The goal of the research is to gather data on at what prices people in the same sort of business as you are selling the same or similar products. Again, it’s necessary to make sure the information you’re gathering is covering the same market and the same products as what you’ll be offering. It’s no good doing price research on Maserati when you’re actually selling a Pinto. Be as accurate as possible, as this research will play a big part in setting the final price you charge.
This is part one of our series on setting pricing. In part two, we’ll discuss what happens after the data gathering process.