There is a broadly accepted notion that pricing is (or at least should be) strategic decision. There are plenty of references and posts on the topic.
I could not resist joining all those super wise people and passing you some wisdom about pricing.
My favorite method when it comes to pricing is First degree price discrimination.
[content_box_red width=”75%”]In first degree price discrimination, price varies by customer’s willingness or ability to pay[/content_box_red]
But before we get into that lets see how you can build your price.
Know your limit price!
What I mean about limit is your break even point. This is also called cost based pricing. I would highly recommend to stay above that limit, if you want to keep your business float. (You can ignore this warning if you have a big fatty savings account and you do your business for fun mainly.) Building your prices bottom up is a great exercise every year and should be the part of the yearly planning.
[content_box_light_blue width=”75%”]Check your price calculation
On some of my webpages I sell places for banner adds. Since my primary role model is Garfield, I lend the places for one month minimum and charge monthly flat prices based on average page impression. Earlier this year I received a request and sent out the quote immediately. The response was almost as quick, very politely inquiring about my mental abilities and suggesting that in the middle of a market crisis I should not try to charge double than the accepted average.
What happened was I sent out the quote as was in my price book only forgot to check how the site is doing. The traffic dropped almost to half so my price just doubled.
I called the client instantly apologizing for the mistake, offering her the right price and closed the deal.[/content_box_light_blue]
Know your price goal!
The expression “Revenue target” is not reserved for large corporations. Solopreneurs are allowed to use it as well.
It should be the part of your business plan for the given year and the cash flow break down.
– Oops, you do not have those plans ready? – stay tuned I will have some post about those in the near future.
So your price can be derived from your revenue target. You can use Freelance Service Rate Calculator if you are selling yourself – I mean your time, it is a great tool.
Use your price to select customers you want!
I love watching my wife when she is putting together a quotation to rent our vacation rental for a customer she wants to attract. We have an advertised daily rate but she is willing to torture it to the extreme if she feels that the given customer worth it (will be a nice, caring and returning guest) . She is rationalizing every penny (it is forint actually, but it wont mean you much) of discount she is giving but also registering the calculation for herself for later reference.
[features_box_red width=”75%” + border=”2px”]For every outgoing quotation have your background calculation saved for your record. It comes handy when the customer comes back for some negotiation.[/features_box_red]
It is even more fun when she is dealing with guests who definitely would bring trouble. This time prices go a bit wild, ensuring that if the customer takes it and they are as troubled as thought (usually they are) we still come out good.
How she knows whom to attract? From the emails and phone calls and many years of experience, but she can do it with about 90% success rate.
This is the first degree price discrimination in action. I think it is not only the Garfield in me saying that you want those customers who are fun to work with and you can earn money while doing that.
Remember, the first line of defense against bad customers is your pricing.