The price you charge for your product or service may have a direct impact on the ultimate success of your business. Finding a price that appeals to customers and still gives you an adequate profit margin is a key to success.
The price you charge for your product or service may have a direct impact on the ultimate success of your business. If your prices are too high, customers may go to a competitor who offers a better deal; if you offer bargain basement prices, you may cut into your profit margin and stall your business' growth. Finding a price that appeals to customers and still gives you an adequate profit margin is a key to success.
Pricing is often neglected by home-based entrepreneurs because they do not understand the concepts associated with this business function. Many small business owners tend to take the cost of making their product or providing their service and multiply that number by an arbitrary figure, reasoning that the end price will produce a sufficient profit.
That calculation may or may not be true. The costs of operating the business may not have been covered, and an appropriate profit may not be produced. When the pricing is arbitrarily figured, the results will be just as arbitrary.
Costs and desired profit are just a few factors that entrepreneurs fail to include in their pricing scheme. There is also little regard for the competition and for the image the end price will produce for your company. All of these elements should be considered in conjunction with your overall business or marketing plan.
Pricing is very subjective. What works for one company may not be entirely correct for another. The important thing to remember is that some basic rules apply to all home-based businesses.
As a home-based owner, you may have an advantage when it comes to pricing. Because your overhead costs are likely to be less than your competitors', you may be able to offer a low price to consumers without sacrificing quality. This can be a very strong selling point. However, don't price your product or service so low that you undercut your profits. In your pricing, you must include overhead, labor costs, material costs, profit margin, and your own time.
Your Time is Money
Figuring out how much your overhead expenses are, or what you need to spend on materials, is relatively easy. You can look at your receipts and bills and add up the numbers. On the other hand, deciding how much your own time is worth is far more subjective. Whether you sell a product or a service, you must set a value on your time, that is, give a dollar value to the time it takes you to complete a project. This stated value is especially important for service businesses, which essentially sell time and expertise.
For example, if you are a personal fitness trainer, you are selling the time you spend with clients and your experience and knowledge. Only so many hours in a day can be spent training clients, so you have to find a price that makes that time worthwhile for you. Remember, training your clients isn't the only time you spend on your business. What about all the hours you spend seeking out new clients, doing paperwork, reading books or magazines to stay on top of new fitness techniques, and driving to and from the gym or your clients' homes? This time counts too. Your pricing will have to reflect these "non-billable" hours too.
To set a value on your time, consider your education, expertise, and professional reputation, in addition to some intangible factors, such as confidence and aggressiveness.
Many employees-turned-entrepreneurs use their former salary as a basis for their billing. This may not be the best formula. Your former job many have included some perks: health insurance, vacation days, a company car, membership in a gym, and so on. You would have to add these costs to your former salary in order to come out even.