One of the things with which I struggled most in operating my media business was setting prices, especially because what I offered was a service, not a tangible product. When you offer a service, you are essentially charging for your ideas, your skill, your experience, and your education—backed by your reputation. There were many factors I took into consideration for this task, including the market the client was located, competitor pricing, the cost of goods (my time and materials to complete the job), and client acquisitions or sales channels.
What became evident to me after the first few years (where you’re accepting whatever comes your way to establish yourself and pay the bills), was that my business needed a solid identity and purpose. Business lesson learned! Once I established what my ultimate goal was for my business and what my core, foundational values were, I was able to identify my market more clearly. This allowed me to identify and define the value of my service to that market.
There are 7.7 billion potential clients out there in the world. And although that number obviously decreases exponentially with each business, the point is, we can’t possibly serve everyone, everywhere. More important than cost of goods or competitor pricing is how well you know your target audience and how much they value your services or product.
When struggling to price out your services or goods offered consider these five strategies from Small Business Trends to grow your business.
1. Understand Your Market Price
Correctly pricing your product or service starts by determining the market price—the current price your product or service can be bought or sold. An economics professor will tell you the forces of supply and demand influence market price. The price at which quantity supplied equals quantity demanded is the market price, and because supply and demand are fluid, market prices change quickly. Factors such as employee wages, world events, and natural disasters all impact market price. Just look at how the recent pandemic disrupted the supply chains and affected food pricing on dairy, meat, and fish products.
Start by researching market trends in your industry, market demographics, and supply and demand. Check with your industry trade association—they should have valuable information for members. Also, Google Trends is an excellent resource about popularity trends over a specific time period. Risk Management Association (RMA) Annual Statement Studies are available at libraries or online and provide benchmark financial ratios for businesses in over 370 industries.
2. Cost of Goods Sold (COGS)
Calculating the direct costs of producing a product (COGS) ensures you are not pricing your product too low or too high. Include the cost of materials, equipment costs, utility costs to run equipment, shipping costs, and labor directly utilized to create the product. You then add other factors to that total to establish a profit margin. Research what the average markups are for your industry. When pricing a service, look at standard industry practices, plus market prices.
3. Sales Channels
Pricing also depends on your sales channel (or channels). Sales channels are how products and services are distributed to the customer, such as: