As a business owner, you probably work on numerous tasks and face some obstacles each day.

I understand that one of the biggest headaches you might encounter is how to price your products and services such that you’re compensated fairly for your effort and expertise. Also, it needs to align with your customers’ perspective where they pay the amount that they believe the products and services are worth (also known as perceived value).

Here are 5 pricing strategies that you can use to set the right price for your products and services.

[Entrepreneurship Tips] [5 Pricing Strategies] How To Set The Right Price For Your Products And Services

Disclosure: Some of the links below are affiliate links. I will earn a small commission, at no extra cost to you, if you purchase through these links. Your support encourages me to continue blogging and help with the costs of hosting this site. Thank you!

1. Market Rate

The most obvious way to determine your prices is to check the market rate.

  • What are the prices of similar products and services?
  • How are the products and services charged? eg. subscription plans, cost-plus/markup pricing
  • How much are your competitors charging?

This allows you to have a feel of the usual prices in the industry. There are 3 ways to go about setting a price.

  • Lower than market rate: Explain why your products or services are cheaper
  • Same as market rate: Highlight the unique selling proposition (USP) or simply, why customers should choose yours over others
  • Higher than market rate: Explain why your products or services are more expensive

Whatever pricing you choose, do ensure that it’s a fair compensation for your company and a reasonable price for your customers.

Photo by Lukas on Pexels

2. Man-hours

Man-hour is the amount of work done by one person in an hour. You can set a dollar amount for each man-hour and then, charge your client for it. For example, if your man-hour is $100 each and it takes 2 man-hours to complete a task, you can invoice your client $100 x 2 man-hours = $200.

After doing the same task repeatedly, your teammates and employees are likely to know how long the task will take based on past experience. You can then ask them to provide the estimated man-hours to complete the task. Do use this number as a reference. I strongly suggest that you add slightly more man-hours to this estimated man-hours to account for urgent changes and ad hoc requests. Or you can add a disclaimer to your invoice that there may be additional charges should the task exceed estimated man-hours.

If more than one person is needed to complete the task, you need to multiply the number of workers by the number of hours each one worked. For example, 10 workers x 15 hours per worker = 150 man-hours. You’ll then charge your client $100 x 150 man-hours = $15,000.

Man-hours may not be accurate when you’ve never done the task before. Without any past experience, it might be difficult to determine the number of man-hours needed to complete a task. You can give an estimated number of man-hours or consider looking at other ways to set the price.

Photo by fauxels on Pexels

3. Expertise & Grade: Tiered Pricing

Just like how Fiverr Pro charge more for their services than Fiverr, you can also charge different prices based on the expertise and grade of your products and services.

This is similar to tiered pricing often used by SaaS companies.

  • Essentials or Fundamentals: Cheapest option with least features. Best for individuals, small teams or new customers.
  • Regular: Middle option between the cheapest and expensive. Usually highlighted as “most popular” or “most affordable”.
  • Premium: Most expensive option with best and all features. This is for customers who want quality (and everything else!).

Depending on the products and services you sell, this might be an easier way to set your prices. Of course, you can add more tiers like 5 or 7. I recommend that you use an odd number so you can emphasize the middle option. But I still think 3 tiers is the best. Too many tiers will confuse your target audience and make it hard for them to choose while too few tiers will make them feel like you’ve robbed them of their power of choice.

Sumo - CTA

Source: By Kaleigh Moore via Sumo

4. Material Cost: Markup

Another thing you should look at when setting prices is the cost of your materials. For example, eBooks are almost always cheaper than print books because the latter includes costs of printing and paper. To create an audiobook, you’ll need to pay the professional narrator which can be as high as $250 per finished hour. Thus, when setting prices, you need to factor in all these material costs.

Markup pricing works very well with this. Markup (or price spread) is the difference between the selling price of a good or service and cost. A markup is added into the total cost incurred by the producer of a good or service in order to cover the costs of doing business and create a profit. Markup can be expressed as a fixed amount or as a percentage of the total cost or selling price.

Let’s say your material cost is $100. You can set a fixed amount markup of $80 so your profit is always $80 for every product and service you sell. Or you can set a percentage markup of 50% so your profit is always 50% of the material cost.

Etsy - Coat

Source: Ylistyle via Etsy

5. Discount or Sample: Loss Leader

For the purpose of marketing or promotion, you can deliberately set your prices lower than usual. This could be for a certain period like Christmas, an amount of time (eg. 7 days sale) or a specific product (eg. 100ml sample).

This loss leader pricing strategy helps stimulate the sales of more profitable goods and services. Bear in mind that you should conduct an in-depth analysis frequently to ensure that this loss leader pricing strategy is working. See how well your loss lead (product or service offered for sale at a reduced price that is intended to “lead” to the subsequent sale of other products or services) and associated products or services are selling to avoid an overall net loss.

Let’s say you sell jewelry. Valentine’s Day is a great holiday to promote your couple rings. When these potential customers enter your store, you can then cross-sell or upsell other products. If you sell beauty products, you can create a product sample that people can buy at a lower price. You can even give them away free of charge! If they’re satisfied with the sample, they’ll naturally want the full product. Some indie authors also set the first book of the series free or $0.99 while the other books in the series are the usual price of $2.99. This is a great marketing tactic where readers can get the first book at an affordable price and depending on how much they like it, they can get the other books in the series.

The key is to remember your goal: Why did you lower your prices? What are you trying to achieve? For example, you might make your first book free or $0.99 so readers will give you, a new author, a chance. Once you get the results you want, you can consider switching the prices back to their original prices.

Photo by Artem Beliaikin on Pexels

Now It’s Your Turn

How did you price your products and services? Feel free to share your experience~

 

Copyright © 2017-2024
Nicole C. W. All Rights Reserved.

Want to receive updates?

Join My Newsletter Now

 

Be the first to know about hot new releases, tips from my blog and more.

Pin It on Pinterest

Share This