Tuesday, 3 February 2015

10 principles to improve your pricing for (not only) starting entrepreneurs

Set the correct pricing for your work

Sounds interesting? Then you, like many others, have probably spent some time thinking about the best way to price your products or services. You might have hesitated to make a decision for some time and have questioned the decision the second you thought about it or even made it.  Did I make the price too high or was the price too low? Don’t worry about it, assigning the correct price to your service or product is one of the biggest challenges any starting entrepreneur has to face.

It goes without saying there is no universal step-by-step guide. Everyone and every enterprise and service is unique, so the same should go for the price, for which you want to sell your time and know-how. There are however, some universal principles one should follow, which we´ve summarized in the following ten points for you:

1.    Set your price by the quality of your service, not by the quantity. Try focusing on providing quality work with an added value, which benefits the client, increases his revenue, leads to savings etc., and you therefore can charge more for. Trying to perform a large volume of work for a low price is a surprisingly common mistake among starting businesses.

2.    The amount you charge must contain your costs, as well as your profits. This advice might seem vague, but a lot of start-ups have never worked on their own and/or never considered the need to include profit. Make sure you are creating a reserve, which can cover unexpected expenses and slow seasons.

3.    Keep your price list updated. Do you charge the same amount as last year? Be careful- The longer you keep your prices the same, the more you risk being at a competitive disadvantage. In addition, you are one year more experienced now. Why not show it to your clients?

4.    Don´t agree on a fix price, unless you know the exact scope of the work. It is essential to know the complexity and estimated time of the project in order to price it suitably. Additional work is a common part of many, if not most projects. Learn to take it into account, preferably already in the contract.

5.    Don't forget to get paid for your work. Might seem very obvious, but starting businesses often get “trade” offers from their potential customers. It might be tempting and helpful to get „free“ advertising or other benefits, but keep in mind, only money pays your rent and bills.

6.    Keep track of your competitor’s prices.  We´re far from telling you that you should copy your competitors’ pricing, but having this information is very useful and can provide you with valuable suggestions and inspiration.

7.    If you plan to offer your time in price packages, consider it wisely. Price packages can attract potential customers, who are still hesitating to make a commitment to you. They should, however, benefit not only you, but your client as well, so be careful and consider the consequences- don’t sell big price packages with a lot of time involved, without any previous experience.

8.    When negotiating a contract, always think of penalty fees for late payments. Every reliable business should count with fees in case of delayed payments. If you work alone or with people, don´t forget that you are the business owner and the only one responsible for it. Delayed payments are a risk, which should be compensated by contracted fees.

9.    Decide, whether you want to price your clients by hourly rates or by projects. You can´t say, one is better. The hourly rate shows how demanding the task is while leaving the responsibility up to the client and giving the person the security of being paid a certain amount for a certain time spent. Charging per project can be attractive for the client, as he can see the final price in advance, yet assigning the correct price right off the start, without having any knowledge of the time it should take, is a real challenge and only a few can do it well on the first try. One tip: For larger projects, it pays off to divide them into smaller phases or tasks, which you can then plan more precisely.

10.    Track your time to precisely know your price. If you charge per project, time tracking will help you more accurately price your projects and estimate the time for the future. If you charge by the hour, it will provide you with accurate information and data about the invested time for you and for your client. There are a variety of tools that can help you track and evaluate your time: You can use the classic pen & paper method, a spreadsheet software or a specialized time tracking app primaERP, which has been created to serve exactly this purpose :-)

Now that you have seen several strategies on how to price your products or services, what´s next? Read this article to see how you can use the pricing to bill your clients.

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