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1 year ago

What To Charge For Your Product or Service

Oct 23rd 2010 at 8:43 PM

GT Bulmer © Affiliate Power Central

One question I often see in home business forums and Social Networking sites is, "What do I charge for my product or service?"

Surprisingly, there is a simple formula you can use to determine the price to sell something.

Keep in mind, the pricing process I am presenting here is based solely on my experience and my opinion; it is how I like to do it. Someone else might be able to suggest a better way.

To set your price, you must first determine what it’s going to cost you to provide the product or service. Then you must determine how much home business income you want or need to make above the net cost of providing the product or service.

Your costs might include materials, resources, services you need to pay for, and your own valuable time. I don’t know what your costs will be, so I’ll give you an extremely simplified example.

Let's say you are providing a service where your only cost is your time to do it, like writing articles for clients. Let's say you are an efficient writer and you spend just one hour on each article.

How much is one hour of your time worth? In other words, how much do you need to make a day, or a week, or a month to pay your living expenses AND enjoy a comfortable lifestyle?

If you need $4,000 a month, that translates into $1,000 a week, or $200 a day for each of five business days in a week, and if you are willing to work eight hours a day for each of those five days, then you need to get $25 per hour to pay for your time.

In this example, $25 per hour is the MINIMUM you can charge for your service.

That’s the simplified version. If you have other costs involved, they must also be factored in. Every penny you must spend to provide your service must be included. You might have Internet expenses, subscription expenses, fuel expenses and more, all adding up to, say, $160 a month. That would be $40 per week, $8 per day, $1 per working hour of expenses you must cover in your product or service prices.

If you need to clear $25 per hour and you have expenses of $1 per hour, then you have to charge $26 per hour for your service. If your costs work out to $5 per hour, then you have to charge $30 per hour. If your costs work out to $10 per hour, then you have to charge $35 per hour.

What if you don't want to work eight gruelling hours a day? What if you only want to work four hours a day? Simple. Then you must double your base rate to $50 per working hour. ($50 times four hours equals $200 per day.) And since you are cutting your working hours in half, you will have to balance your costs per hour by doubling them. Now, instead of recovering your cost at the rate of $1 per hour for eight working hours, you will have to double it to $2 per hour for just four working hours.

Okay. Enough of that. I hope you get the picture.

Now for the second factor in determining the price you charge for your product or service:

How much are your customers willing to pay?

You want to get paid well, but you also want your prices to be competitive so you don’t scare customers off.

To help determine the fair market value of your product or service, the best thing to do is find out what others are charging for the exact same thing. Once you get a feel for the going rate for your services, you can decide what to charge.

If the going rate is $35 and you need a minimum of $25, you have an opportunity to keep your price low while still making money.

On the other hand, if the going rate is $20, you have two choices. You can drop that product and look for something more profitable, or you can set your price at $25 and work hard at convincing your prospects that you are worth the extra $5. Maybe you can provide some extra service or incentive to sweeten the pot.

If you are just starting out and your prospective customers do not yet know you, you may want to keep your prices lower until you’ve built a reputation for performance and dependability. But make sure your prices cover all your home business costs.

After all, when you are deciding what to charge for your product or service, you must remember that you are in business to make money, not lose money. Determine what you are worth and don’t settle for anything less.

GT Bulmer
Affiliate Power Central

 

4 comments
Please to comment
Nov 3rd 2010 at 10:02 AM by GTBulmer
Hello, Rishi: Thank for commenting on this article. Some marketers may not think about this, but others do appreciate getting a few tips on how to set their prices. GT :-)
   
Nov 3rd 2010 at 5:55 AM by rishiforyou
Thanks for the info GT. This article explains in an extremely lucid way what one should charge for a service one is providing to others keeping all the variables in mind.
   
Oct 24th 2010 at 1:42 PM by GTBulmer
Hello, Judy: Thanks for the comments. Yes, when we choose a targeted market, we need to adjust the product and the pricing to appeal to that market. If the price for the existing product can't be lowered, then we must find a way to produce the product at a lower cost to be able to lower the selling price. That might mean dropping part of the service, or removing some features from the product.

However, in a case where the entrepreneur is timid about "charging too much," that is where it really helps to know what your lowest price can be (so you don't drop it too low), and know what competitive products are selling for. That info can boost your confidence. That is what happened with me when I set my offline writing rates: I checked out the rates charged by professional writers organizations; I considered what the local market might pay; I determined what my minimum rate could be ... and then I found a happy balance between them all!

I will check out your blog. GT :-)
   
Oct 24th 2010 at 8:34 AM by judyhwright
Hello from Montana, Thanks so much for the great article. I have spent 25 years working with low income or court appointed parents and so I had the mindset that no one could afford my products. Really need to do a mindshift to prosperity. Always good to read what you write. Would love your comments on my blog at http://www.cyberbullyinghelp.com I will check out your affiliate power site too. jhw
   

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