One of my friends runs a small, growing business. One day, she told me about a client who approached her for a job, and how like many entrepreneurs, she was not what to charge. She sent in her proposal and had a follow-up meeting with these prospective clients. Then, when she was asked how much she would charge, she froze.
Like many entrepreneurs and freelancers, she was in the dilemma of charging too high and passed over or charging too low and selling herself short. Unfortunately, she went with the latter and subsequently found out that the job she was called for had been handled by someone else before but they had done a bad job. So these clients had called her in to re-do everything. She cringed at herself inwardly when she heard how much the former contractor had billed the company. They had billed approximately three times what she had asked for and had been paid in full.
From that moment on, she decided she would charge what was fair to both parties and not sell herself short. I bet this decision is working for her. The truth is, for many young entrepreneurs, pricing can be an issue. Even for corporates trying to negotiate a contract. So, if you are unsure about what to charge, here are a few nuggets that may help.
Standard markup
I’m not sure if this markup applies in Nigeria because we are a peculiar country. But the standard markup for pricing goods and services is two and a half times more than your cost price. For anyone who’s unsure, the cost price is how much it costs to produce a product or provide a service. So after that has been calculated, you multiply it by 2.5 and you have your selling price.
Know your target market
This is a huge defining factor. Are you catering to SMEs, MSMEs or big corporates? Who is your customer/client? If you set your prices too high and you’re targeting startups or SMEs or you set your prices too low and you’re targeting the 1% of the world. You won’t really be able to attract customers/clients. My advice is to do your homework. Find out how your ideal customer thinks – their hobbies, their lifestyle, etc, then set your prices with your findings in mind.
Research your competitors’ pricing
Find out how much on average your competitors are charging. And make sure they are offering the same value and quality as you. Also, bear in mind that some people charge based on what their lifestyle requires. So someone else may charge 20k but they’re not paying any bills, they work from home, basically, all of the 20k will go into their pocket. While you on the other hand have mouths to feed and will hardly have anything to yourself by the time everyone has indirectly collected their share. So inasmuch as it’s good to have an idea what your competitors are charging, understand that they will have their own factors that influence their prices that you have no idea about.
Set a price based on Value
Know the value of what you’re selling. This will require research as well. Also, is this value justified? A sheepskin rug made from 100% sheepskin would most likely be quite expensive and the value placed on it would be justified because of the quality. You can’t decide to make the same thing but with synthetic wool and place the same value on it, just because. So knowing the true value of what you’re offering is important and then set your price based on that.