How do I decide what to charge my customers?

How do I decide what to charge my customers?

How much you charge clients for your services and products depends upon many factors. It is important that you understand the bottom line costs of running your business. As a starting point, work backwards from your costs and try and estimate your income. This is the amount per month you need to draw out of the company as minimum to survive on.

What are your fixed costs and expenditures and what is the minimum you must earn to meet these outgoings? Knowledge of your expenses will give you a base-line cost of your time and services. Once you know this it is possible to see how your charges to customers compare to your break-even rate.

You can probably estimate fairly accurately your running costs, telephone/mobile bills, cost of materials etc. Your total costs including your own drawings (personal income) will become your target figure for your sales line - you now know how much you will need to earn per month to stay solvent.

Factors that determine what you charge:

• How much you can produce per month. You cannot do two tasks at once, such as selling when you are making and vice versa. Estimate realistically how many products you can produce per month taking into account the time you need to devote to managing your business and marketing. Don't underestimate the time for managing and marketing particularly at the early stages of your business. You will also become more productive as your business skills develop.
• Take into account seasonal fluctuations for your particular product or service. For example December could be a busy time for some but a slack time for others when usually two weeks are taken up with the festive celebrations.
• Consider 'market forces' - selling your product on Earlstown Market is going to be very different to exhibiting at 100% Design. If you undervalue your product or service it may not be taken seriously or seen as an investment. But if you overprice you may not be able to sell at all. However, do not go for a low figure as it is always difficult to increase your fees or selling price once your clients know what you have charged initially. It is a balance that you can only decide by conducting some sound market research.
• You need to research your competitors so that you know what other companies are charging for similar products or services.
• Know your terms and conditions of sale and how this will impact upon charges. Clearly state sale or return agreements etc at the beginning of negotiating a sale. If you are providing a service, establish a rate card for day rates and hourly rates. Always know what your minimum fee will be and also if you're asked to provide multiples have an appropriated figure worked out - what discount can you offer if a client asks for 20 or 100 pieces of work. Do not be 'put on the spot' and if you cannot provide the figure at the time, say that you will get back in touch within 24 hours. Make sure that you have their full contact details and that they have your business card.

Once you have considered the above you should be getting close to a minimum figure you need to charge. You will know what it costs for you to produce a product or deliver a service. You now need to work out your profit margins and what you can charge, again taking into account all the above factors.

Costing is not a precise art, but you should be able to arrive at a figure that is a good estimate and with experience this will become more accurate.

Roy Jones 2006