You would think the number one way of deciding on a price would be to take your cost of putting that product or service together, what it costs to supply it and then add on a reasonable profit. You would think. Wrong.
It certainly does no harm to look at these kinds of calculations to provide yourself with a yardstick on what the pricing could be. But lets have a look a bit more closely as to what the calculations entail.
Working out the cost price of your product or service is already a problem. What quality will your product be? Are you going to use exceptional materials and the best workmanship. Is this product meant to last a life time, or just for this season. What pricing do your main competitors have, can you make the product at the same price or less? And many more questions.
What about this consideration if you are in the service industry. Many years ago I worked in a lawyer’s office. I remember a session with the partners where we were revisiting the rates the practice was charging. We couldn’t decide whether one should charge for the hours of work the lawyer put in researching and reading up on case law.
Should the client be able to expect that the lawyer knew his stuff in all fields and therefore not pay for that research time, or should the client pay for all time spent on the case. We never did have an answer for that at the time and ended up not charging for the research time.
As part of pricing, the entire value statement of your product or service plays a part. Every person who trades his time or expertise with another person has to constantly ask himself whether the service or product provided is cheap and nasty, or great value for money, or exclusively expensive amongst many options.
That value judgement will be one of the determining factors for the price of your product or service. When you look at the cost of the widget you are making, you will decide whether to use stainless steel or plastic and that will be determined by where you see your product to fit into the market place.
When providing a service you will decide whether you want to have expensive offices with polished wooden panels, efficient support staff or whether you will convert the spare bedroom into an office and use an answering service to handle calls when busy.
With other words, go back to that Unique Selling Proposition you worked on right at the start of your journey into entrepreneurship. Decide where you want to position yourself with your product or service and then we’ll chat again about pricing.
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on Nov 23rd, 2008 at 9:55 am
jj