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How to set prices in business
AS ALL SMALL BUSINESS owners know, setting the right prices is a difficult task. And a lot of newbie business owners think that being cheap is the better than meeting the market, but that’s not always the case.
Take, for example, a tradesperson I met recently. This tradesman is a painter and he’d been in business for a while before he realised his prices were set too low, and despite all the business he was getting as a result, it was actually costing him money. (We cover more detailed, real-life case studies like this in our micro courses.)
He shared with me the tell-tale signs that your prices are too low.
Lots of small, one-off jobs
Small jobs are important because they keep the home fires burning, so to speak. But you need a good balance of small jobs and bigger projects, with the small jobs being completed around or in the middle of the larger ones.
If you’re only getting lots of small, one-off jobs that you spend more time to travelling to than it takes to complete the work, this is a good indication that your prices are too low. For jobs like these, either charge for travel time or a call-out fee.
For small jobs … charge for travel time or a call-out fee.
You’re too busy to plan ahead
If you find that, in order to make ends meat, you need to keep yourself so busy that you don’t have time to plan your working week, then your prices are too low. You should be able to plan out your weeks so customers know when to expect you, and so you can be as productive and efficient as possible — if you have two jobs in the same area, for instance, planning ahead will allow you to go to those jobs on the same day.
Use a tool like Google Calendar from G Suite to organise your days, and keep in touch with customers along the way so they know to expect you.
You can’t afford to pay for help
Setting your prices lower than your competitors may be one way to win jobs, but the downside is that you’re constrained to completing the work entirely yourself. The tradesman, a painter, whom I was speaking with, told me about a time he couldn’t afford to find another painter to help prepare walls or pitch in with the painting because his prices were too low.
If you’re not able to pass jobs onto other businesses in your industry — subcontracting — and still clip the ticket, or you’re not able to afford to use a portion of the money you’d earn to hire someone to complete part of the job, you’re charging too little.
You’re too busy to invoice promptly
Just as it’s important to plan your work weeks in advance, it’s equally important that you invoice customers for the work you’ve completed in a timely manner. If you find that you often don’t have the time to invoice customers until a week or a month has passed, there’s a deficiency in your business processes. Use accounting software like Xero so you can invoice on the go.
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