60-Second Guide to Developing a Pricing Strategy


How much should I charge? That's a question asked by many new entrepreneurs. Charging either too little or too much may produce the same results: difficulty luring customers, poor cash flow and suspicions about the quality of your work.

In just 60-seconds, we'll show you how to develop a fee schedule that's fair to you and your customers.

0:60 See Who Else Does What You Do
Trade journals and professional organizations often publish baseline rates and fees for national, regional and local markets. Asking other entrepreneurs is also helpful, though some may be justifiably reluctant to discuss their fees with potential competitors. Be sure to learn the story behind these prices. Blindly charging the same as someone else may be inappropriate for your business or customers.

0:47 Set a Reasonable Starting Point
Many first-time entrepreneurs begin with an hourly rate based in part on what a company would pay someone with comparable skills to do the same kind of work in-house. As you gain experience, you'll be able to augment your hourly rate with flat per-project fees based on the amount of work, supplies and other resources required.

0:34 Don't Forget the Extras
Your hourly rate should include a percentage to cover the cost of employer-paid fringe benefits (e.g., Social Security, health insurance), and your overhead costs (e.g., office space, equipment, supplies, vehicles, business development and research time). You may also include a profit percentage for funding capital investments or future growth and surcharges for time-sensitive assignments or those that require specialty work and extra resources.

0:25 Reward Customer Loyalty
As you develop "regular" customers, consider offering discounts in return for a larger volume of work. Make sure this discount does not cut into your profit margin and that the advantage of staying busy doesn't limit your ability to attract or serve other customers.

0:13 Communicate
Be sure your customer is aware of your rates and surcharges before doing any work. If the customer wants to negotiate, carefully weigh the pros and cons of a lower fee. Is this a one-time project or the start of a long-term relationship with this customer? Will you still be able to cover your costs of doing business?

0:03 Keep Your Prices Current
Don't set your price schedule in stone. Monitor inflation, industry trends and your own costs to preserve your profit and marketability. Some variables that influence your prices may not become apparent until after you've been in business for some time. A free, objective evaluation of your pricing strategy from the small business experts at SCORE is also a great way to ensure that the value you provide justifies the compensation you receive.

Brought to you by SCORE"Counselors to America's Small Business"

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