How to Price Your Product or Service
Q: I'm starting a wedding planning business, and I'm wondering how much I should charge. How do I price my services?
A: Unfortunately, there's no easy answer to your question. Every business owner must arrive at his or her own pricing structure. The good news is, the information you need is readily available-you just have to do your homework. Ultimately, your rates will depend on three things: your actual costs plus a reasonable profit margin, the pricing the market will bear and the ways you'll add value to your service offering.
Start by itemizing the cost of a typical job, including a markup on any subcontracted products or services. Consult your industry's national association for rate guidelines, and contact a range of potential vendors to learn what it will cost to purchase their goods and services. Then add overhead items to your pricing, such as the costs for your rent and marketing materials, plus a sufficient profit margin to grow your business.
Your next step is to review your local competitors' marketing materials, including their brochures, ads, direct mail pieces and Web sites. If their rates are unpublished, you may have to mystery-shop them by speaking with their sales staffs. You'll undoubtedly note similarities in their pricing structures. This will give you invaluable insight into the rates the local market will bear.
After surveying your competitors' rates, you may be tempted to price your services lower, thinking you'll gain a competitive advantage. This would be a mistake, as prospective clients are more likely to base their buying decisions on "value" than price when choosing between similar services. Decide how you'll add value by offering special features that clients will find worth paying a bit extra to obtain.
Finalize your pricing based on your fixed costs, what you've learned about your competitors' pricing and the ways you plan to add value to your service offering. That will give you just the right solution to your pricing dilemma.