As entrepreneurs, especially when first starting out with a new product or service, we often wonder, how much should I charge for this? I was in the same boat! I had no idea when I first started.

Know your Industry

In order to know how much you should charge, you first need to understand your industry’s demand and price point. Maybe you have already done the research and have a good idea of what price you could charge for your product. Ultimately, you need to know how your competitors and other companies in the industry are pricing similar products or services. By no means do you have to set the exact same price. It means that you should have knowledge of your market. Know what price is too high and what price is too low.

Understand your costs and desired margin

Along with identifying the market limits for your price, you also need to determine your costs. You want to ensure you make money, not just sell your product or service. List out your monthly expenses, including what you will pay yourself. Then identify your desired profit margins. This is the difference between your revenue and expenses. I like to refer to this as gross margin. The higher the gross margin, the more cash you have in the bank. You can use this cash to pay off loans or make strategic investments. Understanding your expenses and desired margin is critical when setting your prices. Find the number that you have to make every month to hit those goals. Divide that number by the number of units (this could be anything from sandwiches to wedding photography) you plan to sell that month. That will give you a price that you can start with!

The target price should provide value to your customers

The bottom line for setting your prices is knowing that your product or service provides value to the customer. Customers want to experience something, and feel emotion, especially when making a purchase. Making a sandwich with that special sauce you know will surprise and delight. Promising to go the extra mile while working a consulting gig. Whatever you’re selling, be sure that you are providing the value the customer is looking for when setting your prices. Think about it from their perspective. If you were paying this price for that service or product, what would your expectations be?

In Summary

When pricing your product or service, it’s important to research your market or industry, understand your goals and revenue targets, and ensure you are providing the absolute highest value for your customers. You will be able to land on a price that works for everyone in no time.