You’re an entrepreneur, and you have stuff to sell but how do you competitively price your products and services to sell and hit your sales goals each month?
Trust me; I get it. Pricing your products and services can be extremely confusing; especially when you think that you’re competing for some of the same customers and clients as your competitors.
Here’s the truth. There is NO competition, and you have your very own customers and clients to serve. They belong to you and no one else. Once you shift that mindset to believe you’re not in competition with everyone else you can sell your stuff like hot cakes!
Before we dive into how to price your products or services strategically, I want to prewarn you that my approach may be a little unconventional from the other gurus online but here’s the thing about my process, IT WORKS!
PAY YOURSELF FIRST
Now you may be wondering how do you pay yourself after you pay for expenses from any sales in the business, right? Well, actually with my approach you pay yourself first!
Firstly, commit to paying yourself before you pay for any expenses; which is typically the opposite of what most people do. Most entrepreneurs tend to pay their business expenses first and then pay themselves with the remaining profits.
Unfortunately, the latter approach comes from a lack or scarcity mindset and sets yourself up for failure. If you continue to pay yourself peanuts and not account for the money you would like to generate from your business, it can cause you to be resentful of your business and cause a whole host of other issues.
Therefore, let’s flip our way of thinking. As part of the process for pricing your products and services, you must know how much you want to pay yourself from the income that comes in and what your goals are. By doing so, you can use this to reverse engineer your sales numbers to ensure you will hit your goal and be able to cover expenses.
Let’s say for example you’re committed to paying yourself 40% of your profits and want to allocate it the following way:
- 10% – Savings
- 10% – Investing
- 10% – Personal
- 5% – Charity
- 5% – Taxes
Here is a simple formula you can follow to pay yourself FIRST and handle all of the business expenses that come as part of the journey as a business owner.
- Amount Earned * Allocated Percentage = Your Monthly Earnings
- Amount Earned – Your Monthly Earnings = Remaining Balance for Expenses
As you can see, this is not a typical approach that most would take with pricing their products and services but if you want to get paid doing what you love to do, then you need to create a strategy to pay yourself with an abundance mindset that sets you up for success and not a failure.
From here you can reverse engineer your numbers and determine how to price your products and services accordingly when you know how much you want to pay yourself.
Alright, let’s talk about physical products. I feel these are easier to price versus services and we’ll get to services in just a hot second.
When pricing physical products, there are a few things to consider first:
- Fixed costs that come in every month regardless of the sale
- Direct costs such as expenses to produce the product
- Desired profit from the product
- Your monthly earnings
- Demand of the market
- Trends of the industry
- Value of the product
- Ideal audience and customer
Notice I didn’t say competition is a priority before considering pricing? I feel it’s important to know what others are doing in the industry but not to view them as competition. Use them as inspiration to position your product better in the market.
Once you have through these considerations and have found some clarity, it is time to move onto the next step.
Let’s price out the physical product! Here is what you’ll need to determine to plug into an equation:
- Your hourly rate
- Cost of materials
Product Pricing Formula
- Cost of Materials + (Total Hours * Hourly Rate) = Original Product Amount
- Original Product Amount * 2 = Wholesale Amount
- Wholesale Amount * 4 = Retail Price
I recommend doubling the whole price because we often undervalue and undercharge what our products are worth, and it allows us to attract a higher quality customer that is willing to pay for a quality product.
Digital products are fun to price. They’re passive income related, and for the most part, you can create something once and sell it over and over again. Say hello to time freedom and more money!
What I love to do with digital products is to create pricing tiers where you can sell a variation of a digital product, if possible, to reach different people at the levels they’re willing to invest and for whatever type of support they need.
When determining how you can package your digital products to sell you will need to decide on three options: Basic, Intermediate, and Premium.
What could you place in each tier so that you can attractively price each accordingly?
An example could be as follows:
- Basic – eBook only $47
- Intermediate – Audio Training + eBook $147
- Premium – Audio Training + eBook + 30-min call with you $397
I have found what works the best when pricing your digital products are to know the value of the product and determine what feels right for pricing. I know it’s a little weird, but if you don’t feel the price is attractive to your ideal audience and if you’re not confident to sell the product, then you won’t sell it. You absolutely have to be lit up about the product + the price to sell it like hot cakes. And no strategy is going to do that for you which is odd to say as a strategist.
Additionally, don’t be afraid to price high. The higher the pricing, the higher quality people you’ll attract for your digital products. When you undercharge for your digital products, people tend to wonder what’s wrong with it and devalue it purely based on the price. Charge the higher price!
Lastly, don’t forget about your goals, desired income, and expenses either when calculating the price especially if this is your only income producing product. If this is another form of revenue for you, then you can set a different objective for the digital products and price it accordingly.
I like to treat my digital products as bonus income and focus more on selling my services, but that’s just what I do. By all means, do what feels aligned for you.
Just like with digital products, pricing your services is very similar. Of course, you want to take into consideration the following:
- Desired income
- Sales goal
- Value you bring to the table
- Approximate hourly rate
- Approximate amount of time it’ll take to complete the service
From there you’ll want to determine if you’ll have tiered pricing, payment plans, require paying in full, a percentage down or even any combination of those options.
I typically recommend that if you are going to do a payment plan option that you increase the price they pay you by 20-25% because there is an increased risk of non-payment and there could be additional costs involved with processing multiple payments versus one payment in full.
Additionally, as I mentioned with pricing your digital products don’t be afraid to price your services high. People naturally equate quality with higher prices and as a result value the service. If you devalue and undercharge for your services, unfortunately, you will get clients who won’t value your services. And more often than not they are demanding and expect more from you without paying additional money for it. I know, I hate to be the bearer of bad news but it’s the ugly truth about pricing your products too low.
Now depending on the type of service you provide will depend on what packages to offer; however, I do recommend having no more than three package offerings that you can present as options on your website and on a sales call.
Customizing your offers for every prospect is not ideal. I want to encourage you that if you need to provide customization because of the type of service you provide then start with a base rate with standard services and add on the services as is necessary so that there is some consistency with what you’re offering.
As with the digital products, you’ll want to have a Basic, Intermediate, and Premium service packages to offer. For example, if you’re an online coach you could have the following as packages to provide your ideal audience:
- Basic – 90-min intensive
- Intermediate – 6-week 1:1 program
- Premium – 4-month 1:1 program
Something to consider when it comes to building your packages and pricing them is to determine which one you want to sell the most of and make it more attractive to the prospect. You can do this by the services’ features, benefits, and price point.
Now that you have all of this information it’s time to determine the pricing of your services. Let’s take a look!
- Number of Hours to Complete the Service * Hourly Rate = Value of Service
- Value of Service + Value of Digital Products (if applicable) = Total Value of Services
Once you know the total value of the services, it’s time to feel into the price again. If you are not confident in the ability to sell your service at the price you’re asking you will not sell it! I can’t express this enough. Your price must feel good intuitively, and as you grow and scale your business, you will increase this price to match the energy exchange between the money received and the service you provide.
As a side note, it is not selfish to ask for more money, and it’s not un-Christian either. You deserve every single penny you ask for from your clients!
Alright, I think that’s it!
You have my top tips and tricks to pricing your products and services so that you can (1) pay yourself and not resent your business, (2) sell your products and services with confidence, and (3) make money doing what you love!
I would LOVE for you to share with me in the comments: What is your biggest takeaway from the article?
Of course, if you have questions about pricing your products or services, I’m always here to help!
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