Pricing Your Product or Service

Pricing your Product or Service

One of the hardest things to do when you are a business owner is coming up with a fair price to charge for your product or service. I can tell you that it was the hardest thing for me when I started my law practice. I had worked for a non-profit law office where we provided legal services for the indigent. The lawyers did not have to consider billable hours or thinking about how much to charge for our services. The survival of the law office was the headache of the executive director, the lawyers worried about the legal work. Our salaries were rather modest, to say the least; but the lights were always on, and there was always paper and ink for the printer.

When I decided to strike out on my own I had no idea how to charge a fee that was fair to the client and to me. Now I am the one who has to keep the lights on and the ink flowing! And even today I struggle with the question of fees when I am doing legal work that is open ended. The billable hours can add up very quickly! For this reason I always try to charge a flat fee, even if it isn’t always possible. With a fee that I quote before I start the work, the client doesn’t have a nasty surprise; though I sometimes do, if the client is calling me at all hours of the day and night!

The pricing strategy is essential for the success of your business. You need to price your product within a range called the Price Ceiling and Price Floor. The Price Ceiling, as the name suggests, is the highest price that you can charge. The Price Floor, obviously, is the lowest price that you can charge and stay in business. You want to be between these two boundaries. “Well, that sound great”, you may tell yourself, “but what do I need to consider in order to achieve that goal?”

Lets start with the price floor, since this is easier to quantify. In order to come up with your lowest price you must consider all your costs, and I mean all. You will start with the cost of the raw materials, your office overhead; which will include utilities, employees’ salaries and benefits; insurance, loans and interest, the cost to operate your company’s vehicles, shipping charges, and taxes to name a few.

Determining your pricing ceiling is not quite as simple, as you must consider factors that are not easily quantifiable. Some questions that need to be answered are: How much is a client willing to pay for this product or service? What is the quality of this product? Why are people demanding this product or service? Do they need it, or do they merely want it very badly? How much does the competition charge for a similar product? What image am I trying to project? These questions are not always easily answered. Some clients always think that the fee is too high. On the other hand, I once had someone question how efficient could I possibly be, based on the fact that my fee was considerably lower than another attorney he had consulted.

But I want to be an attorney that a small business can afford, and I am happy to give up the image of the powerful lawyer; and in the eyes of at least one person, an efficient one. In that particular case, there was no contest, I didn’t really want to work with a client who forms his opinion of the value he receives based on whether I can charge three times my usual fee. I rather work with many clients who believe they are getting value for their money. That is my niche, and it is the business decision that I am comfortable with. You will make your own choice about niche and price. The important thing to remember is that your decision must result in profit for your business; otherwise you won’t be in business very long.