Pricing Your Product or Service
sarahobryan

SarahObryan.pngI’ve always been a firm believer in creating your own blueprint in life and leading with passion. I am the proud mum of three gorgeous superheroes and Director of Lasso Creative, a design studio on Sydney’s North Shore. My book Business & Baby At Home – a set-up and survival guide for mums (Finch, 2013) - was born after many years of fielding questions from countless friends, family members, and colleagues on how to work from home and build a successful business. I hope it inspires others to chase their dreams too. Here's an excerpt from Chapter 4, enjoy!


Chapter 4

Business Building Blocks

In this chapter

  • How to set your price
  • Correct invoicing
  • Knowledge and skill development
  • Balancing accounts
  • The production process
  • Understanding retail
  • Organisation and bookkeeping
  • Quote writing
  • The advantages of technology

Establishing your price

With no expensive overheads like big business, you have the opportunity to be competitive in your local industry yet still make a tidy profit for your time and effort.

You need to be confident in what you charge. Resolve to not sell yourself short if a client wavers at your quote. In setting your initial price, again, research is key. Don your inspector coat and a few disguises (or the help of an obliging friend) and research what your competitors charge. As times change and the cost of living fluctuates, it’s important to revisit this exercise to check, and remind yourself, that you remain competitive in the industry.

Anna, publishing professional and mum to Alexandra and Dimitris, says, ‘The woman I learned most from in my early career also taught me how many pages I should be doing an hour for editing or proofreading. This was my standard for a long time. Without it, I am sure I would have well and truly gone above and beyond the call of duty, lowering my hourly rate in the process! The concept of watching how many hours you are putting into something is valuable advice.’

You might even visit the Reserve Bank’s Consumer Price Index (CPI) calculator online to see what the inflation rate on your goods or services has been over the relevant amount of time. It may help justify giving yourself a pay rise down the track.

When deciding on your hourly rate or the price of your product, you have to factor in the tax and superannuation component as well as the cost of keeping the business running, (such as hardware and software upgrades, phone and internet connections and power costs).

When you are providing a service, a client will often come to you with a budget in mind, however it’s important to provide your own set of numbers, quote-wise, in regard to what your time is worth.

One way to figure out an hourly rate is to indulge in a little mathematics. Jot down a summary of business expenses over a year. This becomes a working budget for you and helps establish what you need to earn to meet the total cost.

The total expense, including your initial salary, is your monetary goal for the first year. From here, figure out a guestimate of annual working hours, remembering that it won’t be a normal nine-to-five hour week. Factor in holidays, allocate time off for sick days and acknowledge that not every working hour will be a ‘billable’ one. As a small business owner, it’s important to understand that you’ll do a lot of work that goes unpaid like tending to emails, business accounts, self-marketing and going to meetings. In the beginning, you’ll spend much more time on such activities than when your business is up-and- running. Let’s say, for now, that half of your annual working hours will be billable.

Adjust the following equation to reflect your situation.

Working days in a year (Monday–Friday): 260

Holiday allocation: 10 working days

Sick/care days: 10 working days

Christmas allocation: 10 working days

Child’s schedule/appointments: 10 working days

Public holidays: 8 (this varies in each state)

260 workdays – 48 commitment days = 212 workdays

212 workdays x 8 hours = 1696 hours

50 per cent of 1696 hours = 848 billable hours

Now take your budget expense and divide it by your approximate billable hours to get a ballpark figure of what you need to charge to make this venture profitable. For example, the total of the sample business expense came to $42,400. $42,400 divided by 848 = $50 per hour.

It’s not going to be your final figure, though. You need to take into account market prices and where you want to sit among your competitors, but it’s much better than taking a stab in the dark.

After doing my sums and some research, I found that there were no standards in my industry. However, if I halved my charge-out rate from the advertising agency I previously worked at, I was still offering a fair rate for smaller clients, while building a healthy profit margin. My services aren’t the most expensive nor the cheapest available – I sit nicely in the middle – a position I’m comfortable with.

Upping your rate

It’s totally acceptable to increase your rate, especially if you can tick one or more of the following boxes.

  • You’ve checked out the industry standard and it is higher than your rate.
  • You realise that you are offering a specialised service and there is little to no competition.
  • Competitors with the same amount of experience are charging a higher rate for the same service.
  • Your work is rather seasonal. You can charge higher tariffs (much like holiday accommodation) during the busier seasons to offset the downtime.
  • A client is requesting a tight deadline.
  • A particular client is increasingly difficult and a higher fee will offset the trials that their requests bring – or will give you a valid reason to not work with them again! …

Summary

  • Kick off your business with the right price for your product or service. Consider wholesale and retail prices if necessary. Research your industry and competitors, factoring in your running costs.
  • Gain inspiration from people who have made a mark in your chosen industry. Use that insight to increase your own skills and set your niche.
  • Keep all your receipts and file them appropriately at regular intervals so tax time is less stressful.
  • Religiously follow a work-in-progress list so you don’t drop one of the many balls you are juggling.
  • Everything your customer receives should look professional, including your quotes, which can be viewed as a working contract. Include any terms and conditions to cover any foreseeable misunderstandings.
  • Let your inner geek out and discover how technology can work for you. Set up your answering service and email inbox on your mobile phone for when you are on the run. Think wireless, bluetooth, phones, computers, back-up devices and printers all in-sync and available at the click of a button.


Business & Baby at Home: A set-up and survival guide for mums by Sarah O’Bryan (Finch Publishing, September 2013) is available in paperback from good bookshops nationwide and online. It is also available as an ebook from Amazon Kindle, KoboBooks and the iBookstore. For more information, check out the Business & Baby at Home facebook page or visit the website.


2 Comments

Great, practical advice.  I still question my own pricing and often way over-deliver.

I once was given great advice:  if no one ever expresses shock at your price when you mention it, you're definitely way under-pricing.

Getting better at this, however I still struggle because of working with two very different industries - Corporate and the Education Market (i.e. schools teachers). Corporate won't blink an eyelid, the Education market you will just lose them...so it can be a tricky balance.