From the July 2000 issue of Startups

Face it. As an entrepreneur, you have to put a price on your services, products and time. If you're reaching for a feel-good figure in the dark without doing your homework, chances are, you're lowballing yourself-cheating yourself out of profits that could easily be yours. If you come in too high, you may be pricing yourself out of the market. Smart pricing is the key to business success, but how to find out what's right? Read on to learn how to set a price in today's market.

Who better to ask for the prevailing rates than your more-established competitors? Masquerade as a potential customer, or play it straight with the competition and tell them you're trying to get a handle on pricing. Our advice: always try honesty first. Competitors don't want rogue pricing to upset the marketplace and often will gladly share their rates.

Your competitors are no help? Don't despair, because the Web is crammed with info that will jumpstart your brain (and just may turbo-charge your calculator as you watch your income go into overdrive). Find inspirational and informative tips here:

  • "How Do I Price My Services?" (www.eto.org.uk/faq/faqprice.htm). A dandy FAQ prepared for Europeans but relevant for anyone wrestling with pricing their services. Especially useful here are discussions of differing theories of pricing ("breakeven," "perceived value" and "competitive").
  • "Pricing Your Product" (ext.msstate.edu/newsletters/hb-mbb/20000111.htm). On-the-money advice from Mississippi State University, where you're walked through a magic formula: direct costs + labor + overhead expenses + profit = price. Need elaboration? The profs provide it in this succinct, understandable paper.
  • "How To Raise Prices Without Losing Your Customers" (home3.americanexpress.com/smallbusiness/resources/managing/pricing). It can be hard and tricky-current customers won't clap their hands in approval if you up the going rate-but this expert roundtable (assembled by American Express) offers shrewd tips for nudging your prices higher.
  • How much do you want to earn over the next year? Know that, and the "take-home pay calculator" at www.freeagent.com/eoffice/payrollcalculator.asp is a cool tool to evaluate your overall financial picture. Input billable hours, hourly rate, expenses and deductions and get a detailed analysis of your gross billings. The results can be sobering, especially if you realize that at your current rates, you are mathematically eliminated from ever getting ahead. This calculator can be just the shock-treatment needed to prod your rates.
  • Sell products? Or maybe you just want another take on this delicate arithmetic? Use the "Cash Flow Budget Worksheet," a free download at www.news.onvia.com/x3754.xml. The template helps you see if your business will generate the cash necessary for survival (yours and its). It's easy to use, and inside a few minutes of inputting numbers, you'll have the verdict before your eyes.

Brain Food

The Contract And Fee-Setting Guide For Consultants and Professionals (John Wiley & Sons, $108, www.wiley.com) by Howard L. Shenson. This book is pricey, but you'll likely more than make back the investment on the next contract you ink because Shenson offers all the nuts-and-bolts advice needed to set smart rates.

Do you sometimes price yourself too low just because you lack the confidence to ask for the bigger numbers? Does your mouth freeze when it comes time to say that high number? Jack Canfield-an educator turned major entrepreneurial success through his Chicken Soup series of books-knows all about that, and in his six-tape set Self-Esteem and Peak Performance, he shares the secrets that have let him become a millionaire many times over. Get Canfield's prescription at www.chickensoup.com/jack/product1.htm#anchor1253870.


Before learning how the Net helps entrepreneurs set prices, Robert McGarvey and Babs S. Harrison say they used tarot cards.