Starting a business is no small task. As an entrepreneur you have to create and deliver great products / services. You’re also CEO, CFO, Head of Marketing & Sales, etc… You may not need to be an expert in all areas but you do have to ge the job done. Pricing is one of those areas where micro-entrepreneurs often struggle.
- To help their customers – they have some skill, idea or product that they believe can make a difference in peoples lives.
- To earn some money – to support themselves and/or a family, to supplement other family income or even for a rainy day fund.
In order to ”earn some money”, aside from having a good product, you have to
- Know your (the product’s) value from the perspective of the customer,
- Assign a monetary value that is aligned with your financial goals and your customer’s willingness to pay.
- Communicate confidently around the value you deliver and your worth.
Sounds easy, right? There are three things entrepreneurs can do to master pricing.
Understand Pricing and How It Affects Your Business
Price is the monetary value you place on a good or service. Pricing is how you set, communicate and manage prices for your business. Three key skills will support you in pricing: math, human psychology and communication. Pricing isn’t just numbers and that’s great news for those who don’t love math.
Pricing affects your business in two ways: the profitability and (for service-based businesses) how much you have to work. Of the four levers that affect a business’ profit, price has the biggest impact. Price reduces profit as swiftly as it increases it, therefore you need to proactively manage pricing.
In service-based businesses price affects how much you have to work. If you sell a service for $100, then you need one customer to earn $100. However if one time you offer a discount and sell it for $80, then to earn $100 you’ll need at least one more customer. You work twice as hard to earn that $100 (not just the service, but also the administrative work). Often times, people who discount indiscriminately or under price are caught off guard. They can’t understand how they work so much and earn so little.
Explore How Your Relationship to Money Affects Your Pricing
Each individual possesses a unique relationship with money. It’s based on years of observations and experiences from personal (like our families, friends, teachers, etc.) and external (such as our community and the media) sources. Our relationship with money impacts how we see and do pricing in our small business.
For example I’m a planner. I like to know what’s there, what’s coming in and where it’s headed. On one hand that’s a positive thing for an entrepreneur, business planning is helpful. However it can lead to over planning which can slow me down or lead to indecisiveness. The important thing is to understand your relationship with money. Know how it affects and defines your decision-making.
Know and Stand Up for Your Worth
If you’re unclear what value you deliver, then how do you expect your customers to know? Reality check…nobody sits out there waiting for what we have to deliver. You have to show them the value, believe in your worth and communicate it clearly. Setting boundaries and standing up for yourself, helps your customers understand your value.
For some it’s an easier thing to do than for others. For many of us knowing and believing in our worth is influenced by our upbringing, social and cultural beliefs as well as those pesky little limiting beliefs we have. Understanding what’s influencing how you see your worth, can help you move beyond the things that hold you back.
In conclusion, entrepreneurs don’t always feel comfortable with pricing at the start. However by understanding a few key elements you can begin mastering the art of pricing for your small business.
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