Should I price above others?

Costs

Using this method to set your asking price, you will evaluate all of the variable costs that you incur and then add a mark-up percentage on top to represent the value your service is giving your customers.

Price too cheap and you risk sending a message of no confidence while an average cost may present a lost opportunity. A 10% profit margin, rising to 20% if you are highly skilled is typically what you should be considering and allows you to reinvest in your business.

Remember not to give away work for free. Sometimes you will lose clients based on pricing, this is inevitable as you will never please everybody all of the time.

Competition

This method utilises your competitors’ price as a benchmark rather than setting a price based on your company’s costs or customer value. The advantage of this method is the simplicity of copying an existing strategy, allowing you to price yourself mid-range. You therefore won’t be perceived to be too cheap or too expensive.

The massive downside to this method is that you are using someone else’s cost analysis for your business. Your company exists to offer an alternative to what is already on the market and you need to find your own space in the market for both your product and your pricing. Yes, know what your competitors are charging, but you would be unwise to let this dictate your final decision.

Value

This method bases a product or service on what the customer perceives it to be worth. Rather than concentrating on your company and your competitors, you research what the customer is prepared to pay and what they actually want. By really getting to know your customer you will truly understand their buying decisions.

The downside to this is that it will take time and dedication and will not be 100% reliable. The upside is that having researched what your customer is prepared to pay, this may be higher than you anticipated, and as you add value as you get to know your customer, you can increase your prices.

Each of these strategies has its place and you would be wise to consider all three when deciding on your selling price.

You also need to factor in that fees should be evaluated every 6 months and should be raised each year in line with inflation. Your business will be incurring additional costs each year and if you do not pass these on to your clients you will be eroding your profit margin.

Call in at your local TaxAssist Accountants for help. 

By Terry Murphy CPA

Date published 28 Feb 2019

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