Making a break into the world of entrepreneurship is an exciting experience. The sense of purpose, professional networking and budding business development can start new entrepreneurs on a high note, keeping them up at night just imagining future possibilities.
The reality is that entrepreneurship can also be exhausting.
Planning, coordinating, investment and the emotional toll add up quickly. Learning the ropes to a new endeavor definitely has its challenges, and one of the big ones is learning to price the business’s products and services.
“In order for entrepreneurs to avoid early burnout and end up with a bad investment, they need to learn the best way to price themselves and their services,” says Diana Jaquith, Executive Director and Cofounder of WISE Advise + Assist Team.
The excitement behind the new business is justified, but it also needs to be grounded in the reality of the market.
Building a business is inherently exciting. Whether it’s becoming your own boss or pursuing a passion project, the energy is there. But there’s also the need to really understand how you’re going to turn a profit with your new project.
- Start by looking at your competition.
Take the time to research what others are doing, how they’re pricing it and whether that approach is working. A full competitor analysis gives new entrepreneurs an understanding of the market and a reference point for pricing.
Researching one other business in the same field isn’t likely to be sufficient. Analyze multiple competitors to get a stronger picture of the market and how their pricing adds up. Skipping this crucial step will leave entrepreneurs without any sense of how their efforts and investments into the business can be priced.
Once you have a full picture of that research and competitor analysis, you can ask yourself, how does my business compare?
- Time Tracking + Time Management
Another often overlooked step in the pricing process is time tracking and management.
Understanding exactly how long a service or product takes to make or deliver is part of the equation. But what about the marketing, onboarding, client communication and other tasks that take up time?
It is so important not to underestimate your time (or your team’s time) to fulfill a service from start to finish. There are so many tasks to complete in just one day, for example: be sure to include the time it takes to craft a response to a customer’s email.
Everything needs to be time tracked in order to get a true picture of your work. Without it, you may be underpricing yourself.
It is crucial to your success to carefully consider and track the time it takes to acquire and onboard new clients. With realistic expectations of how long it takes to gain and begin work with new clients you will be better able to price services and provide work for your team.
- Get the full picture of cost of goods and services
Getting a full picture of the cost of goods for the product or service rendered is also important. You may use various softwares to keep business running smoothly, from task management to payroll, and those costs need to be considered when pricing to clients.
“When you first begin as an entrepreneur, you may think that it is straightforward: I provide something, the customer pays me. But in reality there are systems that you need to support and run your business, and those items will also need to be calculated into your pricing,” says Jaquith.
For businesses selling tangible products, those costs could add up from things like packaging and shipping costs, which is why creating an end-to-end picture of the business’s product cost will be critical to an overall pricing package.
Ultimately, proper pricing comes down to getting a sustainable profit margin. Set margins at 50-60% for services and 75% or higher for products. These margins will change as the business grows and your skills progress. As you learn and refine your product or service, work towards increasing margins.
Starting a business can be the most rewarding part of your career. Putting in the time and effort to get your pricing strategy right with careful planning and research will make it possible for your business to grow consistently year by year.
Not sure where to go next in your business? WISE is here to help! The WISE team can advise and develop a 90-day strategic plan to meet your goals.
