One over-looked factor when discussing finances is setting your selling price.
How do you set your selling price?
When doing an event, what informs your ticket prices?
When sewing a custom-made dress, why sell it at that price?
When writing a book, producing music, painting artwork, why that selling price?
When drafting a proposal for consultancy work, what informs your hourly rates?
When I ask entrepreneurs what informs their selling price? The common answer is:
“I’m charging according to what my competitors are charging.”
This may not be inherently wrong, [if you are selling a commodity] but your competitors may not be aligned to your business goals.
So, what is selling price actually?
Accountants will tell you that selling price is cost price of manufacturing or acquiring a product plus a percentage of profit margin.
However, customers don’t care about your costs, they look at your product and they attach value.
Price is the perception of value you will derive from a product.
When you visits other markets [especially informal markets] you will realise that most stalls don’t have price tags.
Price is a negotiation between the buyer and seller’s perception of value.
So when the buyer asks:
“How much is this?”
She has opened the negotiation.
The answer often tends to be hazy and ultimately the seller will respond with a question:
“How much do you have?”
The test is that of the buyer’s perception, what is her perception of value for the product?
The supplier knows her price, but the test is what is the price the buyer is willing to pay?
It is more about perceptions and value than it is about numbers?
Understand your value and then charge accordingly.