When I started working one-on-one with clients to create marketing strategies with them, I didn’t anticipate how frequently pricing and self-confidence would come up. But I have learned that it is something nearly all my clients deal with - and we must addresses it before we can start talking about their marketing strategy!
It comes up so often, I even wrote a blog post about why you shouldn’t apologize for your prices.
I frequently see posts in online discussion groups from new business owners asking, “What would you pay for this product or service?” I understand why the question is being asked, but the process is backwards.
Instead of asking “what would you pay?” they should be asking “how much does it cost me to make this?” and then basing their pricing on that.
Some costs to consider
Cost of materials
How much time it cost you to make it - in my experience, this is the one most people overlook – especially artists and crafters.
How many/how frequently you can reasonably create
Cost of delivery (if applicable)
Business cards & other marketing materials
Rental space – if used to create your product
Misc. marketing costs
Taxes – state, federal, and any local taxes you may have.
Licensing costs (and renewal costs as well)
So when it comes to pricing your work, be aware of those costs!
First I’m going to talk about handmade items and then I’ll cover services.
Let’s say an item you will make costs $20 in raw materials, plus three hours of your time. If you charge $20 for it – you are breaking even on money and losing three hours of time.
If you charge $40 for it, you end up making just over $6.70/hour - which isn’t enough to cover time, licenses, & expenses like taxes, etc.
If you charge $60 for it, you end up making $13.33/hour. Which may be enough to cover expenses, but if it costs you three hours of time to create, how many can you make in a day to sell?
You’ll have similar expenses to the ones listed above, plus (maybe):
Subscription services for your business
On-going training costs/certification
Depending on your business, your service may be something your customer sees first hand – like massage or acupuncture or some other kind of on-going face-to-face service. Which means your customer can look at the hour of time they spent with you and say “it cost that much” and move on.
If, however, your service is slightly less tangible, a customer will have a harder time seeing the value and understanding the price if they only see the end result. It doesn’t mean the value isn’t there, it just means you need to be more clear about communicating what it is and how it impacts your client.
So, if you ask friends, family, random strangers on the internet “how much would you pay for this thing?” they aren’t taking any of the above into consideration. They are thinking about their bank accounts, whether or not the thing/service has value to them in the moment, whether or not they could possibly do it themselves, and many other factors that don’t have anything to do with your work. And, yes, they each have their own money hang ups they may or may not even be aware of.
Someone who says it is worth $30 and someone who says it is worth $75 are both speaking from their experience, budget, and expectations- which is why it is so important to start with your costs first.
So what if you want to charge $80 or $100 or even $300 for your thing?
* Educate your clients. If you only make one version of the items you sell, your clients need to know that. If you only use organic products, your clients need to know that.
* Share the value and perspective you bring.
* Explain things they might not understand - When it comes to handmade items, unless someone has tried to create it, they likely won’t understand the complexities or time involved, and that’s fine.
* Don’t get hung up on what someone else charges because you don’t know their costs any more than they know yours.
* Remember that if the only thing someone cares about is a rock-bottom price, then they probably aren't going to be an ideal client for you.
Under charging comes from a couple of different places – fear, lack of self-worth, being new and not understanding how important proper pricing is, wanting to be “assessible” to many people, and there are usually some other money hang ups in there as well – passed down from our families, media, our culture, and our own experiences.
Its ok to have these hang ups – everyone does. But be aware of what they are and recognize when they are getting in your way.
Happy Price vs. Sad Price - one of my favorite pieces on this topic
List Your Prices (the right way) - "Expensive for a good reason" is my favorite line
10 Things You Shouldn't Say When Pricing Handmade Items - read it
Know Your Worth, and Then Ask for It - Worth watching, probably more than once
Musings about marketing, social media, and small business.