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Are You Charging Enough for Your Products and Services?
Updated: Jul 01, 2020 / Article by: Lori Soard
You've finally decided to take that big plunge and work for yourself. However, when first starting out, people have a real tendency to undersell what they are actually worth, especially if you run a site that offers mainly services or virtual products.
Jen Conner, a close friend of mine who has been a freelance artist for the past fifteen years, shared her experience first starting out in art and trying to set a price on projects:
When I first started doing murals for people locally, I had no idea what to charge. I was scared if I charged what my time was really worth that they wouldn't hire me. But, I do professional level art. I actually made only 45 cents an hour on one of my first jobs. That's when I realized it was time to reevaluate my pricing.
I made similar mistakes when I first began designing websites and doing content writing. Because I wasn't sure how to estimate how long it would take to complete a project, yet potential clients wanted quotes, I underestimated what I needed to be paid. When you get to the end of a big project and you crunch the numbers and realize you could have made more at minimum wage, you learn a valuable lesson about pricing.
Hopefully, this article will help you charge a fair rate for your products and services from the first day you open your blog or business and you won't run into these same issues that Jen and I did.
What Are Others Charging?
When deciding on a basic pricing structure, take a look at what others are charging for similar services or items.
For example, you might go to your competitor's site and see that she is charging $20/hour for personal coaching. However, you have 10 years more experience in the field than she does and you have an advanced degree. Obviously, you can probably charge a little more for your services.
It is really important to make a detailed list of what people in your area or niche are charging. You don't want to price yourself so high out of the market that you don't get any work. You also don't want to price yourself so low that you are working for pennies on the hour.
Freelancing Market Surveys
Jerry looked at top 100 freelancers' hourly rate in his recent market survey. Here are the numbers for web development, writing, and graphic design.
Your next step in determining prices is to figure out what you need to make a livable wage. If you went out and got a 9 to 5 job, what could you realistically expect to earn? That is a good place to start.
However, you also have to factor in the time you'll spend on promotions, seeking new clients and creating material. As an entrepreneur, there are a lot of tasks you'll have to complete that are not billable hours. A good rule of thumb is to add 20-25% to whatever hourly rage you could make in the corporate world.
That usually helps cover those un-bill-able moments in your day.
If you are selling a tangible product instead of a virtual product or service, then you'll need to consider some other factors.
How many sales are you doing on a weekly/monthly basis?
How much does the product cost you to procure? If you're making the product yourself, The Design Trust has a fabulous way to calculate all your costs so you don't forget anything.
A good way to get a base price for a product to be sold in stores is to multiply your gross cost by 1.5.
Ultimately, products are a bit harder to price than services/digital goods because you likely are competing with big retailers like Amazon.com and even brick and mortar stores. You have to balance how much to charge with how much you're willing to make. It's probably a good idea to at least have a mix of products and digital goods or to sign up for affiliate programs so your overhead costs are minimal and any sales are mostly profit.
Pricing digital products is about more than what your time is worth. You have to consider what the information is worth to the customer. It's also impossible to predict what your sales will be. One month, you might sell 100 ebooks and the next 2.
While steady traffic with a very targeted demographic will lessen the variation, you simply can't control how many books people are going to buy because there are so may different factors that play into the equation. Even the month in which you're looking at sales figures can make a difference.
The Exact Pricing Matters
It is common knowledge in sales that you should always price something at the 99 cent mark than the whole dollar mark. The difference is nothing, but you'd be surprised how many people look at a price of $9.99 and think it is under $10 instead of rounding up.
KISSmetrics took a close look at the psychology behind pricing and found that this tactic does work. By using the power of 9 method across 8 different research studies, researchers found that sales were increased by 24%.
MIT and the University of Chicago went on to do an experiment and found that prices with the number 9 in them actually outsold other prices, even when the other prices were lower. They tested women's clothing at $34, $39, and $44. The $39 item outsold the others.
Your takeaway from this is that if your price point is at almost $9, you should probably just raise the price to $9.99. It may sell better, even though you'll be charging almost a dollar more.
Basic Prices for Common Online Products
One common product that website owners create to sell to their readers is the ebook. The cost of ebooks and guides can vary greatly, depending upon the content, so you should study what your competitors are charging for their digital products.
Digital Book World reported in 2013 that the average cost for an ebook bestseller was between $3.00 to $7.99 and included fiction. However, that is for sales through traditional outlets such as Barnes & Noble Nook and Amazon Kindle. You may find that your competitors charge closer to the $10 rate for their digital products.
While it's good to have a rule of thumb on pricing, don't allow yourself to be pigeonholed by it. If you are the only person with a specific set of knowledge or skills that people are willing to pay to learn more about, then adjust your prices accordingly.
According to Entrepreneur, you can easily expect to charge a consulting rate of $40 to $60 per hour for your expertise (yes, even online or via telephone meetings).
At the same time, if you're consulting on something very specialized such as IT services, you may be able to charge an entry-level rate of $175 per hour and as much as $294 an hour with experience.
Test Your Rates
The examples above give you a point of reference to decide what you'd like to charge, but ultimately you need to test your market and your target demographic to see if that price point will work for your particular industry and business.
Over time, you should be able to clearly see what price point the market will bear that still gives you a reasonable living.
Lori Soard has been working as a freelance writer and editor since 1996. She has a bachelor's in English Education and a PhD in Journalism. Her articles have appeared in newspapers, magazines, online and she's had several books published. Since 1997, she has worked as a web designer and promoter for authors and small businesses. She even worked for a short time ranking websites for a popular search engine and studying in-depth SEO tactics for a number of clients. She enjoys hearing from her readers.