Name Your Price
Stumped about what to charge? Setting prices is both an art and a science--and a little bit of guesswork. Here's how to figure it out.
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Jeannette Doellgast spends a lot of time thinking about numbers. She has been doing so for more than a year, ever since she and her husband and business partner, Mohsen Alam El Din, bought the Plumbush Inn in breathtakingly scenic Cold Spring, New York. For Alam El Din, 50, born in Egypt and entrenched for 20 years in the restaurant industry, running his own company is his American Dream. Doellgast, 44, gamely switched careers to join him-after about 15 years as an executive in the textiles industry, and a three-year stint as an elementary school teacher. With the bed-and-breakfast, she soon found herself immersed in the art and science of setting prices. First, Doellgast concluded that they would have to raise all the prices for both the rooms and food at the Plumbush Inn, which had been in existence for 30 years when the couple bought it. Long-time customers weren't pleased, and they made sure to let Doellgast and Alam El Din know it. "It was a risk," admits Doellgast. It has paid off. The Plumbush Inn stands to bring in $1.25 million by the end of 2005. Considering that Doellgast and Alam El Din paid $1 million for the business-with a matrix of many loans and all their life savings-they appear to be off to a good start. Content Continues Below
As you likely know or suspect, you'll have many motives when deciding the prices for your products and services, from understanding what the market can bear to figuring out what you can bear. It may be that you want to serve customers with modest incomes, or perhaps you aspire to a level of greatness that demands high prices. As Doellgast herself observes, "It's instinctive and emotional, but part of it is also tangible." In elaborating on that point, she adds: "Oil bills go up every year, electric bills. Expenses are continually rising." Watching inflation reports and making sense of what's going on in the market can make new entrepreneurs wonder what they should charge for their products and services. And you should wonder. If you don't, and you come up with your fees lightly, you yourself may end up paying the hefty price.
Originally published in the September 2005 issue of Entrepreneur Magazine
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