Setting prices is one of the hardest things for most small businesses and solo practitioners to do. How much is enough and how much is too much?
Most small businesses err on the side of charging too little. A solo practitioner may base their hourly rates on what they earned as an employee. However, that does not take in to account the differences between employees and entrepreneurs.
If you base your hourly rates as an entrepreneur on what you earned as an employee, you will be out of business in short order. Employees get paid for every hour they work (and many that they do not work). You get paid for “billable hours” when you are actually doing work for customers. Employees do not have to pay the cost of their workspace, supplies and equipment and other overhead. You do.
Some small business owners believe that they must charge the lowest prices in order to attract customers. Although it is true that WalMart does a lot of business, so do Neiman Marcus, Nordstrom’s and other high-end retailers. You do not have to have the cheapest price, only the right price for your target market.
So, to get to the nitty-gritty: How do you know if you are charging the right price? Here are some questions to ask yourself:
How much do your competitors charge? You may be able to find the answer by doing a bit of research, online or off. Do you offer more value than the competition? Your prices should reflect that. Do not compete only on price.
What does your target market expect? If they have higher than average expectations about service and quality, they probably expect to pay a higher than average price. You will not lure them with cheap prices.
Are you attracting the right customers? Low prices can attract bargain hunters who will require more service than customers will to pay a higher price. You will spend more time for less money, and still end up with customers who are not happy.
Do you have enough business? If you are not meeting your revenue goals, it may be that your prices are too high– but it is more likely that they are too low. Higher prices create a perception of higher value.
Do you have too much business? If you have more customers than you can handle, your prices are definitely too low. Raising prices may allow you to make more money in less time with fewer customers.
This is a good time to examine your prices to make sure that what you charge compensates you for the value you provide to your customers.