Deciding on a price for goods and services is one of most important decisions any business owner or self-employed person will need to make. The amount you charge your clients has to be competitive, and at the same time you are obliged to make a profit in order for your business to be sustainable – but what is the best way to reach that balance? Here is a quick guide to pricing your goods and services competitively:
Determining Your Cost Price
Whether you sell custom-made light fittings or sell your time as a legal consultant, one factor remains the same: the goods or services you offer your clients cost you a certain amount to produce.
- In the case of a product which you may be sourcing from a wholesaler or manufacturing yourself, knowing the exact cost of the item is essential. Bear in mind that the unit price, plus VAT, plus transport costs, plus the cost of delivering the goods to your client have to be added together to give the actual price of the item.
- In the case of services rendered, you need to factor in your time, the cost of running your office, and any additional materials you use in the process of consulting into the total cost. Once you have calculated how much it costs you to provide goods or services to your clients, you will be in a position to decide on price.
Adding a Mark-Up
If you had to charge every client the cost price of your goods and services, your business would never make a profit. For this reason, it is important to add your profit margin on top of your cost price.
- In the case of services rendered, this is an easy step because the amount you charge for your time is roughly equal to the profit once you’ve subtracted office expenses from the price you charge your clients.
- In the case of a product, you will need to decide on a mark-up that allows you to make sufficient profit to make your business viable. Based on past experience, you may calculate the number of products you expect to sell and ensure that your mark-up on each item will add up to a healthy profit.