Pricing

When it comes to pricing your business, there are things you need to consider to make sure you are earning money instead of losing it.

Know Yourself and Your Customers

When you first begin pricing your product, a good first step is to research your competitors. Once you do that consider where they are and where you are on your business journey. If they have been around for a long time and have gained trust in their industry, while you are just starting out, you probably won’t be able to price your products the same. Even though this may be true, this research will give your business a goal to shoot for as you continue to grow.

Profit Margins

Before you set your pricing you need to think about your profit margin. This is a technical term, but once you break it down it’s easy to understand and even easier to see why it is important. To put it simply your profit margin is the price you sell your product for minus the cost to produce that product. That total is then divided by that same sale price.

Here is a visual of the formula: (Sales price-cost to produce) divided by Sale Price

Let’s use a real life example to make it clear. If you wanted to determine the profit margin for a $25 t-shirt that costs you $10 to produce you would use this equation.

(25-10) divided by 25= ???

If you do the math, $25 minus $10 equals $15. Once you have that number, you divide $15 by $25. 15 divided by 25 will give you a .6 or 60%.

(25-10) divided by 25= .6 or 60%

You’ve just made a 60% profit from that single sale!

One important factor in figuring out your profit margins is knowing your overall expenses. You do not want to sell yourself short in all that it takes to create your products. This includes your materials, equipment and your time. This should all be factored in when to making sure you are giving your customers a fair rate, but still ensuring your business is making money from every single sale.

Your business can’t survive without making a profit, which is why understanding pricing is so important. You can want to do all the good in the world with your product or service, but if you aren’t making any money, you won’t be able to make that a long-term reality. Be confident in valuing your business and knowing exactly what you are worth.