How To Set Prices For Your Offer Without Selling Yourself Short

macbook pro and apple magic mouse on black friday sale
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Gaining new clients is the # 1 challenge for most entrepreneurs and small business owners. Many forget, though, that even if you have a client and work hard to service them, you can actually lose money instead of making it. Setting the right prices for your offer is as important as gaining new clients. Because you didn’t start your business to work for free, did you?

That’s why in this blog, I’m sharing with you this 5-step process so you can set solid pricing for your offers and be confident in them without selling yourself short.

Know your cost

Even as an online service-based entrepreneur, you have costs: fixed and variable. Your fixed costs might not be as high as other businesses (for example, photographers have costly gear, landscapers all the equipment and fleet, etc.), but you still have some. Here are a few examples: annual website and domain payment, any subscription fees for the software you use to run your business like conferencing, online courses or email platforms, insurance, phone, internet charges, marketing, etc.

For your business to be profitable, you need to break even first, which means that you need to generate enough income in a year to cover all those costs. Once you know what they are on an annual basis, you can calculate how they translate to your hourly rate.

More on this below, but here is an example:

Your annual costs: $ 4,000/ # of your work hours 2,000 = $2, i.e., whatever you set your hourly rate to be, 2$ out of it goes to pay all your fixed costs.

If you have any costs specific to the service or project you’re delivering (so-called variable costs), for example, an image bought on Splash for a graphic, you should charge its full price to this project.

Understand your conversion metrics

To determine your base hours rate after you know the fixed costs, you also need to understand your conversion metrics. As a service provider, you’ll spend a bulk of your time in your genius zone, i.e., doing what you love for your clients (web and graphic design, admin tasks, copywriting photography, etc.).

However, it cannot be all the time you allocated to work in your business. You’ll also need to invest a substantial chunk of time in marketing your business to attract and sign new clients. Plus, a small portion on administrative tasks, even if you outsource most of them.

It means that your hourly rate also needs to cover the time you spend on other tasks than doing the client’s work.

That’s where your profit margin % (markup) comes in. Your profit margin % is the “padding” that allows you to grow your business in terms of having financial resources to invest (marketing, better equipment, software, etc.) and an emergency fund for uncertain times.

Determine your base hourly rate

Now that you have your fixed cost and profit margin %, it’s time to determine your base hourly rate.

First, do the pricing research within our niche. For example, if you’re catering to affluent millionaires, this niche’s pricing will be different from if your potential clients made 5 or 6 figures. And even within niches, the pricing will vary widely.

Just think about price cars: you can buy a used working vehicle for $2,000 that will take you from point A to B and a luxurious car worth $2,000,000 that will do the same. Therefore, treat your research just as an orientation exercise, stick to your niche, and don’t worry much about being off by $50.

If you have a hard time deciding your base rate, there are a couple of other exercises you can do after your research. If you’d like me to help you finalize your rate, schedule a free consult here.

Decide if you’re going to offer packages or per hour charges

Depending on your business, you might want to be charging your client on per hour or project/ package basis.

If you’re charging on a per hour basis, add your fixed cost per hour rate to the base rate and then add the established markup to calculate the final rate. Of course, don’t forget to charge any cost specific to the job.

Final rate = ($50 + $2) + markup

If you’re pricing per project or setting a package  – you need to have a good, fairly accurate estimate of how long each project would take you, ex: website, creation of graphics, the email sequence, etc. Also, don’t forget to set boundaries on how many web pages, changes, or iterations are included in the price you provide. Otherwise, you’re bound to lose money in most cases. So a simple formula for project pricing would be:

Project price = the number of hours project will take x (hourly fixed cost rate + your base rate) + markup + any cost specific to the project.

One more note here is – track your hours for projects you do to compare your estimates to your actual times and make adjustments as needed from time to time.

Be confident and clear to the client on the pricing and what it includes.

Always be transparent with your clients what the price of your services includes. Don’t shy away from taking every opportunity to communicate that. People need to hear the same message at least seven times to internalize it. The better and more you communicate, the fewer misconceptions and false expectations you’ll need to deal with. And always be confident in your offer!

PS. If this blog helped you share it away with others whom you think could benefit. And if you need additional help with pricing, sales, or marketing of your offer – set a free strategy call with me here.

  2 comments for “How To Set Prices For Your Offer Without Selling Yourself Short

  1. June 17, 2023 at 10:47 am

    Helloo mate great blog post

    • Maggie Perotin
      June 17, 2023 at 11:37 am

      Thank you. Glad that you found it helpful.

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