Written by Expert Panel, Forbes Coaches Council (including Manex President & CEO Gene Russell)
Reposted with Permission — Originally on Forbes.com
When new entrepreneurs first establish prices for their products or services, it might be tempting to set them low to attract and acquire customers. While fair and competitive pricing is important, you don’t want to set your rates so low that you inadvertently undervalue your work. On the other hand, if your business doesn’t have the longevity or experience to justify top-tier prices, setting them higher might not feel right, either. Striking the right balance is key, and doing that can be tricky.
To help entrepreneurs who are wrestling with these decisions, we asked a panel of Forbes Coaches Council members how to set reasonable prices that still reflect your value. Consider their advice as you create a pricing strategy for a new product or service.
1. Separate Yourself From Your Pricing
Pricing is never about “your” worth. In addition to the value your customer perceives in your product or service, it’s also about the value you perceive in working with that customer. For example, you may choose to provide a discount to a customer who buys in volume. Or, you may initially discount a new product or service to help generate buzz. Both parties benefit from the right pricing. – April Armstrong, AHA Insight
2. Bring More Value Than Your Price Demands
When I first started my business, I was always concerned with price versus value. I learned from another entrepreneur that people typically equate value with price, and when you price yourself too low, it may reduce the value others see in what you bring. I am not saying you should charge too much, but I am saying that the value you bring should always exceed what you charge. – Dan Ryan, ryan partners
3. Analyze Three C’s
When determining if your pricing is effective, you must consider three C’s: customers, competition and cost. Analyze your customer’s perception, your competitor’s pricing and your cost-to-income ratio. Entrepreneurs can be assured they have priced correctly when customers have excellent value perception, competitors price in the same ballpark, and sales income far outweighs the cost of expenses. – Lori A. Manns, Quality Media Consultant Group LLC
4. Target A 50% Gross Margin On Costs
Always target a gross margin of 50% on your costs of goods or services. Controlling your general and administrative expenses should deliver a 7% to 10% net profit. Finally, make sure you are getting paid within terms; otherwise, your business is just a hobby. -Gene Russell, Manex Consulting
5. Develop A Strategy To Determine Value
What is a price? It’s a way of recovering value for value delivered. The balancing act of pricing is really a sequence. First comes strategy: deciding on which end of the price spectrum the entrepreneur will play. Next, determine the value that will be delivered to fulfill that strategy. The physical price comes last. Consistently implementing the strategy produces realistic rates. – Gaurav Bhalla, Knowledge Kinetics
6. Build Flexibility Into Your Pricing Model
Stay flexible. You can offer pilot pricing, special pricing or “friends and family” rates, or you could introduce rollback prices for a set period of time. You needn’t call it a sliding scale, but it will give you leeway to apply a range of prices. Use that leeway. –Kathy Morris, Under Advisement , Ltd.
7. Start Out High With Confidence
To set realistic rates as an entrepreneur, you must be confident in your offering and its value. Many new entrepreneurs undercut themselves. Don’t start off too low—it is easier to go from high to low than from low to high. Be wary of letting self-doubt lower your rates. Of course, you should always evaluate the competition, and not undervaluing your offerings is equally important. -Jerome Zeyen, InsightHR Consulting
8. Validate Your Pricing, Then Raise Rates
Set your price, sleep on it, and decide if that number feels right in the morning. Sell to three clients at that price. Then, raise the rate. Follow this three-step approach, and by the time you’ve secured 15 clients, you will have automatically increased rates five times. Your pricing is validated by three clients purchasing at that rate, so you can justify a gradual uptick in pricing. – Marlo Higgins, Marlo Higgins, Your Chief Inspirational Officer
9. Crowdsource Market Insights
Talk with peers and colleagues about what they have observed in the marketplace related to rates. Be willing to share your observations. Recognize that what the market is willing to bear changes over time, as does your experience. Think through your boundaries, identifying what price you are willing to accept to do what type of work. Not all services should be priced the same. – Faith Fuqua-Purvis, Synergetic Solutions LLC
10. Meet Your Customer’s Expectations Of Value
Determine with your customers how you will serve them, end their pain, and create the transformation they want. Check with customers to see what value your service or products will provide to them, as well as what budget is reasonable, given the transformation. If their budget allows you to make the profit you want, then you can agree on a price that works for both of you. – Christine Rose, Christine Rose Coaching & Consulting
11. Set Higher À La Carte Rates
Entrepreneurs have the ability to evaluate and change prices as they learn and grow. What seems like an unattainable price one day will be low the next. So, know your market, and set à la carte rates outside of your comfort zone. When quoting clients, show them your à la carte options and your bundled packages that come with an incentivizing discount. This puts both of them in the target range and ensures a larger sale. – Laura DeCarlo, Career Directors International
12. Evaluate Your Unique Advantages
Evaluate the competitive advantage that your experience provides, and recognize the value of offering your time and product through your established delivery model. Set yourself apart from other service providers in the same industry and role, and if the solutions you create for your clients are unique to your entrepreneurial style, clients will recognize the value of their investment with your company. – Reena Sharma, Agilis Executive Consulting
13. Consider Every Piece Of What You’re Offering
Pricing varies by market offerings. I’ve noticed that new entrepreneurs almost always undervalue their worth. Think about everything you do, including back-office work, preparation, design, creation and delivery, and then assign an hourly rate. Add up the hours to come up with pricing. Compare that to what’s happening in your industry and market. Then, you’ll have a solid response to, “How do you set your pricing?” –Susan Sadler, Sadler Communications LLC
14. Survey Ideal Clients And Stakeholders
Find people and organizations who share your principles, and see if they feel your value warrants your rates. After you have found those ideal clients and stakeholders, hold on to them and find out what they value in your service. Then, create ways to attract more of those ideal clients. This sounds so easy, but it is not. It is less about the capacity to pay and more about belief and shared values. – John M. O’Connor, Career Pro Inc.