Whether you are an entrepreneur setting a price for goods and services or an employee negotiating a wage there are several key points you need to keep in mind when you are setting your price.
If You Are An Entreprenuer
When setting a price for goods it can be fairly easy to determine your expenses, add a profit margin, and that is your price, right? But what if you sell a service? How do you calculate your price then? Here are some things to consider.
Expenses
Expenses for “goods’ include materials, labor, and overhead. However, when you are setting a price for a service you need to take into account something VERY important, YOUR TIME AND EXPERTISE!
Why is this so important? Well, if anyone could do it, they would. Either they don’t have the time or they don’t know-how. The higher your skill level, the more your time and expertise is worth. Don’t sell yourself short here! So how do you calculate that? One way is to look at your competitor’s pricing.
Evaluate Your Competitor’s Price
This can be tricky if you have a completely unique product but for most of us, there is a market standard price. You don’t have to go head to head with your competitor but you do have to know the market high, the market low, and the market average. You also need to evaluate where your product lies within your given market. Is it a premium product or is it a budget product? There is nothing wrong with either, both have their place in each industry, but knowing this can help you determine your price and your marketing strategy.
Is Your Price too high?
You don’t want to set your price too high because you will price yourself right out of the market. We all know that there is a maximum price that clients are willing to pay for any good or service. However, you also don’t want to set your price too low. This is where a lot of beginning entrepreneurs make a mistake.
Is your Price too low?
You have to remember that price alone does not drive sales. If you price yourself too low potential clients or customers will likely question the quality of your product. How many of us have gone shopping and automatically disregarded an option that was priced “too good to be true” because we automatically assume that it is an inferior product? That leads me to my next point.
Perceived value
Regardless of product or industry perceived value is a huge factor when determining your price. Let’s consider Rolex. Rolex does not make the best timepiece in the world. However, Rolex has done an excellent job of marketing its product. They are seen as a luxurious product, the epitome of success and therefore they can charge a premium price! So this is where you can shine and differentiate yourself from your competitors.
If you are an Employee
Interestingly enough determining your price and negotiating your salary uses a lot of the same principals. Whether you are interviewing with an employer for a new position or negotiating a wage increase at your performance review there are three things to keep in mind.
Do Your Research
Industry Standards
Before you even start to negotiate your price you should know the industry standard for your position and how your location affects that wage (for example minimum wage in California is significantly higher than the federal minimum wage).
Know your Audience
Do as much research as possible on the company and the person you are negotiating with. The more information you have the better. Knowing your audience can help you negotiate effectively.
Know yourself
You need to be prepared to discuss why you are worth the price you are asking! What sets you apart from the “average” Joe? How does this job align with your goals? You also need to know the minimum that you are willing to take, at what point do you just need to walk away?
Have a Backup Plan
What are you going to do if your employer says no? COVID has hit many businesses across various industries. There are times that an employer can not or will not pay what you are asking, and you should have a contingency plan. There are other things that you can negotiate. For example:
- More vacation time
- Better benefits
- A preferable schedule
- Company perks (such as discounts or parking spaces)
- A better title for your resume
- You can even negotiate a performance review sooner rather than later. That way you can revisit a salary increase at the end of the quarter or in six months, instead of waiting an entire year.
The ultimate Back Up Plan
Are you able and willing to “walk away” with confidence? I had to do this with a client of mine. I was working as a consultant for one client in particular when their industry experienced a shift and they were making less profit. They called me into a meeting and announced that they would have to cut my wage by $5.00 an hour. I told them that I would need to think about it and discuss it with my husband. After considering the cost of child care and the value of the time I was spending away from my family I decided I needed to walk away. Even though I was nervous, I went into that office with confidence and said, “Unfortunately, I’ll be giving my 2 weeks notice as of today,” they rescinded the reduced wage request.
Have Confidence
No matter how you are feeling internally, believe that you are worth what you are asking (or at least pretend). Stand firm, stand tall, and with a strong voice, project that confidence! Go into the interview or performance review with facts (research) and a backup plan. If someone isn’t compensating you what you are worth, then it may be time to walk away.
A lot of this advice is subjective and is based on your particular industry, service, and product. But let me tell you a little story. After updating my blog and changing the theme, some of the titles and links stopped working. I really didn’t have time to go through every page so I asked my oldest child to take a look at it. I told them to do it for a few hours, make a spreadsheet on what needs to be corrected and then we would negotiate the price. We agreed that at the very least, she would earn some screen time but if she did A REALLY GOOD JOB then I would consider cash.
She worked really hard and even went above and beyond my expectations.
She came prepared with a spreadsheet and said, “now can we talk about how much you are paying me?”
I said, “Well, what do you think you should be paid?”
She straightened her back and said “15 dollars an hour”.
I almost spit out my drink, I countered with “most adults don’t make that when they are starting out”.
This is where her research came in handy. She said, “But mom, aren’t you a proponent of raising the minimum wage to 15 dollars an hour” (know your audience)… she had me there.
I said, “yes, but the federal minimum wage is on $7.25 right now.”
She hit me with more research, stating that California minimum wage for employers with less than 25 employees is $13 dollars an hour and we live in California… this is what I get for signing her up for debate. We landed at $10.00 provided that she keeps working hard.
To be honest, at first, I was a little annoyed with this interaction. However, when I reflected on the situation, I beamed with pride! I am proud of her for knowing her own worth. She was able to negotiate perfectly with confidence!
