by Isaiah O’Connor
a 4 minute read

One of if not the most often asked questions I have seen asked is “How much should I price for this” followed by a picture of the work or a description of the service provided.  Of course its nearly impossible for an outsider to give a good price due to not knowing the costs involved the local market etc. This means that you are the one who has to decide on the price.

Pricing can be intimidating. Done right it can help you grow and be profitable, done wrong it can cause you to lose your business.  Price higher then the perceived value and few will buy, if you price below the perceived value you may be perceived as cheap or unprofessional, and again few will buy.  

You need to price so that your customer feels they get more in value then they paid for in money. You do this and they will come back, and often refer others. If they feel they paid more in money then they got in value, they will not return and likely tell others not to buy.

Now there another danger in pricing to low. Not making a profit but operating at a loss. The main reason for this is that it is easy to forget that you need to price to cover everything related to doing business. The easiest metric to follow is the  Cost Of Goods Sold. This is simply the direct cost to you to obtain or produce the item or service you provide. This is often the only metric people follow. They often forget overhead costs, and if they are the one providing a service or creating an item for sale they forget to pay themselves for their labor.  

For example, when I build a balloon column for a client, I know my direct costs in balloons and framework. I then also factor in my labor as a cost.  I take the total of my labor and supplies and set that as my job cost. I then set my price over that total combination. When I set that price I take into consideration the other variable that people forget when pricing. That is overhead.

 What is overhead, well that is all the other costs of doing business, such as vehicles, marketing, websites, specialized equipment, rents, utilities, etc. If you do not take this into consideration when pricing you will slowly go broke. So, for example, say you have an item that costs you 20$ to produce. If you sold it for 25$ you would make a profit just based on the cost. However, your business may need hundreds if not thousands of dollars a month just to keep the lights on. So you need to either raise the price or sell a large volume of said product to make up for the low profit-margin. The good news is there are many forms available online to help you can use to figure out these numbers. Just google Job Cost Form for your business and use that as a guide.

So now I have gone over the basics let me tell you something that I read recently on the subject that impacted me. In the book “The Dominant Brand” By Andrew Smith he describes the three things people say when calling to book him.  

When he had a price of 100$ for a birthday they said;

“Great -- you’re booked!”
“Ouch! I’m looking for something cheaper.”
“Is that all? I expected a higher fee.”

Now when he charges upwards of 1,000$ they say;

“Great -- you’re booked!”
“Ouch! I’m looking for something cheaper.”
“Is that all? I expected a higher fee.”

He goes into the reasons he still gets the same basic three responses, but the main point is this. You will always be too expensive for someone, and low priced for someone else. The biggest trick is providing something that people feel they gain more in value then they pay in cash.

So how do you create value? That is the subject of my next blog, building value.  I will be starting a series on how Marvel has used 11 years and 22 movies to change the way we watch movies. Starting with how they have created value for the viewers.

Your Friendly Neighborhood Entrepreneur,
Isaiah O’Connor CBDO Atheoz.com

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