One of the most common issues business face when launching a new product, is the question of what to charge?

Pricing is a major part of your marketing, and complicated by a number of factors, including your competitors, commissions, GST and the inclusions you have to pay for. Here's some things to consider about pricing in your business if you are trying to get a new service or product to market. Often business owners drop their price to win the sale and while great at first, they eventually must charge what it's worth, or else risk going out of business.

1. How much can you afford to lose?

This is a question I ask most of my clients when starting a business as everyone has a different risk threshold.  Knowing yours is key to focusing on making money early, not just covering costs, but doing things in such a way that you can create value for cheaper than your competitors and sell it for the same or similar price.  Know your risk profile – are you betting the house, or using your savings? How much can you afford to lose? Do you have other income? What is your purpose for selling this ‘thing’? Because if you are not making money, it’s going to get tired really quick, especially after all the start up grunt work, building and upfront costs you may never get back.

2. Working out your costs ARE

Now there’s a healthy framework for decision making, it’s time to work out what things are costing you. This is a habit of successful people, asking what that is going to cost, and finding ways to cash flow it, reduce it, delay it, share or leverage costs. Use the worksheet here (insert link) to work out your direct costs. This is not your rent, insurance, and salaries, it is the entrance fee for the tour, the driver’s casual wages and the cost of lunch. It’s the cleaners wages, the laundry bill, any food you offer and fees you pay like commissions.  It’s the alcohol, the entertainment, the fuel in the bus transfer or car hire fee. 

3. Work out what you can charge

There’s numerous ways to do this, including gut feel and analytical. Looking around at what others charge for something similar is an analytical way to benchmark your pricing ballpark. Do your research and understand your competitors. Then step back and look at the experience you offer that is hard to put a price on. 

Are your direct costs less than your competitors, or the going market rate? If so that’s a good start.  They should be otherwise you are in trouble and need to find a cheaper way to operate, or a wealthier market!

4. The cost of getting it wrong

Don’t let perfect be the enemy of the good.  You can always adjust price. The rule of thumb is you charge the direct cost, plus a healthy margin, include any fees and commissions for online transactions and payments, plus GST. Make sure you are in the ballpark with others. When you get a lot of bookings, it’s a sign you are maybe too cheap, but if you get few bookings then perhaps it’s too high.  Just make sure you cover your costs and keep them down if you are growing as it’s the first thing busy people forget to manage when they scale to meet demand – the money is coming in, but costs may be rising too, without awareness. 

On a final note, if you have a complicated business structure, or few direct costs and lots of overheads make a time to sit down with your bookkeeper or accountant to work out a pricing strategy for you to make sure you are covering your costs, makeing a margin, and collecting GST.


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Contact us, call Susan Lee

0466 090 600