Just how important is selecting the right price in your business? It could mean the difference between success and failure. The wrong price can put you out of business. Finding that magic number requires careful thought and planning.
There are basically two schools of thought when it comes to pricing your product or service (above your break-even point):
Add into this equation the brand you are attempting to create. A big part of how people perceive your business is based on what you charge. Two lawyers may do the exact same sort of work, but the one who charges $350 an hour will be perceived as better than the one who charges $150 an hour. Yes, she will get fewer clients, but they probably are better clients.
Here is the analysis to go through to determine your fees and prices:
1. Determine your break-even point. Use the formula above to calculate your break-even point and start there.
2. Identify your customers and brand. Are your customers middle class or wealthy? Is your brand upscale, or not? Do customers want bargains or is quality more important?
3. What is the competition doing? Again, people look for bargains. If you can afford to beat the competition, all other things being equal, you will get business.
4. Don’t set your price too low if you want to grow. The best source of cash for growth is a healthy gross profit margin.
5. Test, test, and test some more. Finding the right price will require trial and error. Tinker.