It's a question that new business owners or hope-to-be business owners have been asking since the beginning of time.
"How do I know what to charge for my product or my service?"
The short answer is this: You Don't Know.
At least, I didn't know when I started my business.
I wasn't sure what my custom dining tables were worth.
But here's the other short answer: The Market Will Tell You Soon Enough.
Let me explain...
So I was getting my hair cut the other day at the barber shop and I was visiting with the barber about his day-to-day life and of course, his business.
I found it really interesting how the barber continued to grow his business, and it should happen the same way for new business owners as well.
Check this out...
When the barber first starts cutting hair, he isn't very well known, he isn't an absolute expert in his craft, so how does he set his pricing?
Why? Because cheap will help get people through the door when they don't know anything else about you. When you're the new kid on the block, you've gotta earn your stripes, right?
It's the same for you and your new business or potential business idea. To think that you can come right in and compete with all the competitor businesses without a reputation to back it up is foolish. Very, very seldomly does this happen right away.
So I would recommend you put it out there, and you put it out there... cheap.
Back to the barber.
So here's the deal: A barber can only cut so many heads of hair in a day right? They don't have an extra set of hands, all they have is their time. They are trading time for money. (Which you honestly don't ever want to get stuck doing... I wrote another blog that talked a lot about that here -> https://www.zachvaught.com/blog/4-steps-to-create-wealth. Go check it out.
However, when the barber first starts, lets say he cuts hair for $10 a haircut. He can give up to 10 hair cuts a day, so he's making $100 a day.
Once he gets his schedule completely booked at $10 per haircut, what does he do?
He raises his prices to $15 per haircut.
What does his customers do in response?
Some leave. Some stay. But soon enough, if he's a great barber and gives great haircuts, the customers that left will soon be replaced with new customers at the new rate of $15 for each haircut.
This continues over time, for the rest of time until great barbers are charging outrageous amounts of money for haircuts.
"But Zach, how do they get away with charging so much money for a haircut?"
Because someone is willing to pay for it at that price.
Here is the deal... It's the same way for your product or service.
If you start and you don't know what to charge, start cheap. Make it so inexpensive that people are willing to give you a shot. As you get better at making your product or performing your service, those customers will begin to tell their friends about how cheap you are and how great your products/services are.
Once you can't keep up any more in a normal day - RAISE YOUR PRICES.
Once you do this to the point that your schedule begins to open up and stays open, it's probably a good sign that you shouldn't raise your prices any more than that.
So to put it to you shortly:
You don't know what to charge for your product, but your customers will tell you by what they are willing to pay.
If you have more business than you can keep up with, you're too cheap.
If you could get a lot more business, then you're probably too expensive.
You want to stay in that sweet spot where you're making great money and you're operating at 80-90% capacity. Once you start getting to 100% capacity or you're consistently working overly long hours, it's time to raise your prices.
You don't want to work yourself in a situation where you're stressed out trying to keep up with deadlines, you're behind, and you are working 80 hour weeks.
Why? Because at that point, you've just replaced your day job with an even more stressful job.
The point of starting your own business is to offer yourself freedoms that you didn't have at your day job.
I could rabbit trail all over the place.. Just remember:
The market will tell you how to price your product. You just have to be aware enough to listen.
If you liked this article, be sure to join Zach's private facebook group where he helps answer your questions on a daily basis here -> www.facebook.com/groups/handcraftedbusiness