Pricing structure for new business

sally · #1 (**permalink**) 05-04-2008, 15:42

When you first set off how did you decide on your pricing structure and did you learn a valuable lesson others could avoid?

There seems to be a fine line between providing a decent quality product/service at 'affordable' prices and just coming across as cheap and tacky. Discounts and loss leaders are great but are not financially sustainable over a long period, so how do you get it right first time?

This seems to be a problem for a couple of our current members who have established websites so may help them too.

Please share you experiences.

Peter W · #2 (**permalink**) 05-04-2008, 16:09

A very good thread.

Pricing is often very difficult to get right, and there are no easy answers. This is especially true for new businesses that are testing the market, and also for established businesses, as the market is always changing. In my view the main things to look at are:

What are my closest competitors charging?
Am I competing on price, or on something else (quality of service, or a niche market)?
What costs are directly associated with this sale?
How easy is it for a customer to use a competitor instead? Is there any lock-in?
If a potential customer buys now, what value are they also likely to bring in the future (sales or referrals)?
How much is the potential customer willing to pay? How much do they value my product?
Can I charge different customers different prices for essentially the same product?
Do I have spare capacity at any time of the year?

I suppose over time you just get a feel for what is right, as long as the numbers make sense.

Calibre Designs · #3 (**permalink**) 06-04-2008, 00:57

Its a very good question.

I am not sure about other business sectors but for us it is extremely difficult. How can you price a piece of artwork? To start, there is a) Time and b) Value.

Time

There is generally 365 days in a year. You are not left with much time if you take away weekends, national holidays, sick days, personal holidays etc... and you are left with time that is chargeable. Set your rate around this chargeable time to make a living. This is generally what most freelancers do I guess. Based in the calculations should be overheads and supplies not forgetting on going investments too.

Value

How much value is placed on the work of art? This could be anything ie design, copy, photography etc. May seem harsh but the reality is, how much are people prepared to pay for what you have created. Years ago, a monkey splashed doodles of paint on a blank canvas. Some millionaire came and loved the piece of "art" and was prepared to dig deep (fortune) for it and got it.

If you are true to yourself - your pricing structure should involve a mixture of the two categories.

Have to constantly review the market, review your competitors and review your costs etc to ensure that the pricing structure you are demanding is reasonable, affordable and above all, profitable.

I sometimes think that a "buying and selling" type of business is easier to run. X costs this amount and sell for this amount = % profit. I do know that it has its own set of problems.

Nothing is easy but I would say that its all about having your finger on the pulse. Keeping a close eye on your market is what will determine the success of your business venture.

Fuzzy · #4 (**permalink**) 06-04-2008, 18:06

Quote:

Originally Posted by Calibre Designs

Its a very good question.

I am not sure about other business sectors but for us it is extremely difficult. How can you price a piece of artwork? To start, there is a) Time and b) Value.

Time

There is generally 365 days in a year. You are not left with much time if you take away weekends, national holidays, sick days, personal holidays etc... and you are left with time that is chargeable. Set your rate around this chargeable time to make a living. This is generally what most freelancers do I guess. Based in the calculations should be overheads and supplies not forgetting on going investments too.

Value

How much value is placed on the work of art? This could be anything ie design, copy, photography etc. May seem harsh but the reality is, how much are people prepared to pay for what you have created. Years ago, a monkey splashed doodles of paint on a blank canvas. Some millionaire came and loved the piece of "art" and was prepared to dig deep (fortune) for it and got it.

If you are true to yourself - your pricing structure should involve a mixture of the two categories.

Have to constantly review the market, review your competitors and review your costs etc to ensure that the pricing structure you are demanding is reasonable, affordable and above all, profitable.

I sometimes think that a "buying and selling" type of business is easier to run. X costs this amount and sell for this amount = % profit. I do know that it has its own set of problems.

Nothing is easy but I would say that its all about having your finger on the pulse. Keeping a close eye on your market is what will determine the success of your business venture.

Fab post Kay!

KeyMark Services · #5 (**permalink**) 07-04-2008, 11:39

I think Sir Alan Sugar (thanks to The Apprentice on the BBC for this gem) summed it up perfectly.

Ask yourself:

1 Can I supply/make the product/service
2 How am I going to do it
3 How long will it take
4 Who will buy it
5 How much will they pay
6 How will it get it into the market place.

Regards
Daren

Dotwhack · #6 (**permalink**) 07-04-2008, 12:17

I find pricing so hard because I don't manufacture or produce anything - I provide a service. I once tried to write a business plan for the bank but the template they gave me was geared towards manufacturing so it just looked like I'd made prices up.

Soon got bored and abandoned finishing the business plan - really ought to do another one to keep my business on track...

Calibre Designs · #7 (**permalink**) 07-04-2008, 17:35

Were in the same position you described Danielle. They say that the UK is becoming more of a service industry. Templates that people present (or forms in my case) was all geared to buying and selling.

If I remember correctly, I teared up the form after I got half way (tip - should check out all the questions before filling) and decided to go head on in business. I had everything I needed to start. Been great ever since but keeping focused with a plan does help for the future.

Dotwhack · #8 (**permalink**) 08-04-2008, 07:51

Good to know it isn't just me!

KeyMark Services · #9 (**permalink**) 08-04-2008, 09:49

Quote:

Originally Posted by Calibre Designs

Were in the same position you described Danielle. They say that the UK is becoming more of a service industry. Templates that people present (or forms in my case) was all geared to buying and selling.

If I remember correctly, I teared up the form after I got half way (tip - should check out all the questions before filling) and decided to go head on in business. I had everything I needed to start. Been great ever since but keeping focused with a plan does help for the future.

Could not agree more. A business plan will be invaluable.

As you get weighed down in the day to day requirements of running your business, it is always handy to have a reference point to go back to to remind you of why you are doing what you are doing and realign focus.

Regards
Daren

ParentsforPlay · #10 (**permalink**) 14-04-2008, 16:57

My proposed pricing structure for my indoor play centre is a right pain.

I have to take different ages into account and the school calender but I just want it to be as simple as possible.

All this x amount for toddlers, x amount for over 4's, x amount for term time, x amount school holidays, x amount for weekends and bank holidays.....drives me nuts.

However if I just had one set price for everyone and everytime, for example, then it just wouldn't work. Grrr.

Sarah