Pricing is arguably one of the most challenging and important topics of running your own business – and I suspect we’ll keep coming back to it. In a previous piece, you can read about the role value plays in the context of pricing. But how do you actually set your price, and make sure it’s the right one?
A piece of honesty just to start: there’s no perfect answer to this question.
However, as you acquire more and more experience as a solopreneur, entrepreneur, business owner or enterprise manager, you’ll (hopefully) reflect around how to get that perfect price sorted, down to the decimals. And just like everything else in business, setting your price is a learning curve.
A logical first step is to take stock of what you actually need to earn. No matter our reason for setting out on building something of our own – whether you want to be a billionaire or a fulfilled philanthropist – you should start with your income.
Dreaming is all well and good, but the right price is rooted in reality.
Create an income ladder for yourself. What’s the bare minimum you need to earn to survive? What gives you a bit of leeway in your personal finances? And what would be an ideal salary – one that gave you a comfortable day-to-day? Once you have these three numbers stated, you can start working backwards.
What are your monthly business costs? How much do you need to pay in employer’s fees (if any)? How much tax do you need to account for on top of the salary? Would you like to be saving some money for the business capital? And what’s the grand total sum of all these numbers put together?
It’s easy to either
a) set your prices at random, with little regard for what you need to be earning each hour
b) set your prices according to competitive market pricing, with little regard for your experience and competence in your field
Start with your needs. Then you can research.
As a freelancer it’s generally difficult to find individual competitors who are similar enough in their service offering, their experience and their customer geography to be reliable comparison points for your own prices. They may be a technical copywriter – but they work out of India. They may be a storyteller – but they have 20 years of experience, as opposed to your two. They may offer full website rewrites – while you offer full website editing services.
This nature of unique service offerings means that you’re often left with having to figure out, quite on your own, how to tackle the value you think your services bring to your clients. This is obviously a balance, too. If you think your services are worth $5000, but no prospects are willing to pay you more than $3500, there’s either something wrong with your prospecting – or your pricing is off.
And determining where you went wrong becomes a whole lot easier if your prices are based in financial necessity rather than long-term visions.
Finally, the right price also needs to correspond to the amount of hours you’re able to work in a day. For some people, that number may be as low as 4. For others, it can go up to 12. While both of these are extremes, your hours need to inform your prices. As long as you’re not scaling yourself yet, your income is based on the amount of time you’re able to put in each day.
All of this combined leaves us with the following factor equation:
Needed income + experience/competence + market understanding + available work hours each day = the right price
Here are some more questions you can ask yourself when you’re setting your prices:
- What are my long-term business goals? How am I going to incorporate these into my pricing today and my pricing development?
- Which values do I have? Am I looking to get rich or to make a comfortable living? Do I want to be able to give to charity?
- Can I own my prices with pride? Or will I cringe every time I send them out to prospects? (If it’s the latter, you probably need to do some work on owning your value as a professional)
Good luck on your right price calculations and reflections. As always, if you have a story or if you need help, please drop me a comment below, or send me a direct email at firstname.lastname@example.org.