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Ways to Figure Out How Much to Charge When You Start a Business

1. Research your competitor’s pricing model.

To help get an idea of how your packages and pricing should work, begin with an audit of your competitor’s offerings. Comparing your product pricing to a big-box player/or competition may not work as they have scale on their side, But maybe you offer something more than they can, such as better service, more customized options, or convenience.

Create a spreadsheet outlining what your competitors are offering, how much they are charging for their goods or service, what promotions they are running and how frequently they are running them, and what bonuses they offer for first time or repeat customers (such as free shipping or package bundle discounts, etc).

2. Determine what your costs are to make your prices realistic.

To ensure that the business you are creating is one that is profitable, it’s important to avoid out of pocket costs from the get-go. Start by taking an overall look at your cost to provide your given product or service.

A simple strategy

  1. Figure out their customer acquisition costs (How much does it cost me to obtain a customer?)

  2. Figure out their cost of goods or services provided to the acquired customer (How much does it cost me to provide what the customer bought?)

  3. Figure out their fixed overhead costs for the business (How much does it cost to keep the doors open and the lights on – even with no sales?)

  4. Figure out the profit margin (or ROI) you need for a healthy profitable business (How much do I want or need to make for my effort and risk?)

  5. Add those up and you should have a fair price for your product or service that will keep your business going and your family fed, but you must always go back and then check your pricing against the market and be sure your value provided to your customers supports the price point.

3. Tack on a steady profit margin.

One mistake that some business owners make is forgoing a profit margin that ensures their total earnings will make them profitable rather than just breaking even. It’s important to track your sales but also track your profit margin.

4. Talk to potential customers

One of the best ways to make sure that your pricing resonates with your audience is to speak with potential customers and hear their feedback. Would they spend what you’re asking? Are your prices a deterrent or a good deal to them?

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