Ask for what you are worth

You may not be able to choose the pricing point for your product

When we start out in business most of us underprice ourselves and overprice our products.

If you sell your own time by the hour or the day the common mistake is to assume that you will work all year round when what you need to do is to assume that you will only work half to two thirds of the time (excluding public holidays, sick leave and holiday leave). This is especially a problem in the services industry.

Yes, low pricing helps win work, but almost guarantees that you will be treated as a disposable employee.

If you can find out roughly what the market price is, then you will have a good guide on pricing your services.

For products we tend to look at the costs of supply, add a share of overheads and then a margin. Sounds simple but unless you are selling into an overpriced market you are likely to hit problems.

Take furniture or household goods as an example. Major manufacturers set up large factories in low labour cost countries to assemble parts supplied by high volume third party suppliers, likewise located in low labour countries.

If you look at software then your biggest competitors can price lower than you can. The equation here is simple – development costs divided by total potential customers. Selling a product into a limited local market means a limited number of potential customers, so even if you work smart and keep development costs down you may not be able to beat the price of a global competitor.

All this seems kind of obvious until you do it yourself, especially in industries where comparable prices are hard to come by.

Too many businesses are set up with dreams of easy profits rolling in the door from day one. Reality is more prosaic than dreams, so if you are in danger of locking yourself into a low profit industry it is better to work that out before you spend all your savings on establishment costs.