Pricing

[altyfc]

How do you determine how to price for your product/service? Do you base it on an hourly rate, per job, or by some other means? How much is it a carefully calculated figure, and how much is it just 'a stab in the dark'?

Also do your prices fluctuate according to the client, and do you always provide estimates or quotations prior to doing any work?

Aaron

[becki]

I like this question. I don't know how to charge for my graphics yet but I was told to do it by the hour. I'm just worried that it'll mean things get too pricey for my customers (when I get them). Is there a sensible way to make sure you dont end up over charging?

[Business Brian]

In starting up, I've especially been haunted by the prospect of pricing. My main aim is to sell to small local companies. However, having had a dry run with one, with some free content SEO, I have quickly learned that if the market pays, you don't need to under-sell on your pricing. What I do need to be assured on is selling the need for the service - there are a lot of companies out there offering SEO, and a lot of it is just plain amateur and misleading.
 
Also - check out the yellow pages - any non-text ad cost the company hundreds of pounds (thousands for a full page), so that should give you a better idea of the marketing budget of specific local companies, if you target them.

[altyfc]

Very true, Brian... very true.  In the same way, when soliciting advertising from accommodation providers, we don't bother if they haven't bothered to advertise with their local tourist board or similar.  It shows they don't have money so we'd be barking up the wrong tree.

[trevHCS]

My personal advice to anyone starting up is not to underprice yourself or think that people won't want to pay a decent wack for your services.

I'd guess the best equation involves:

- Cost of your services
- Perceived income from your services
- Timescale to perceived income

ie: if they can see by paying for your services, they'll boost their own income significantly above what they paid you within a reasonable timeframe then your the person they'll employ.

I think Brian hit on the second rule of pricing - show them that although you may charge a fair bit, you're still significantly cheaper than more traditional forms of money making, eg: web site vs yellow pages.

And the third rule - don't be scared of established businesses. If someone is established and doing reasonably well it probably means they understand rules 1 and 2 and if the equation balances, they'll grab you before their competitors do.


Re. Becki's question about overpricing by the hour. Its really something you've got to play on a case by case basis, however theres a difference between hours worked and 'chargable hours'. There'll be a number of hours you work solidly and others where you're just playing with ideas or researching, its probably best to charge for the solid hours mostly.

I'd guess also you'll get a feel for how long something will probably take and maybe charge that - sometimes you win, sometimes the client does...


Trev

[Business Brian]

Something I'd also recommend is taking tax into account, and adjusting quotes up accordingly.
 
Otherwise you could find the taxman eats straight over your profit margin, and that would do no good at all.

[trevHCS]

Although the more you earn, the more the tax man/woman (even more scary) is going to pinch and of course you get closer to the dreaded VAT levels.

I'm not sure of the maths, but if you can claim your not earning more than about 6K/year you probably don't pay much tax - just put everything through the business accounts ... in theory anyway.

Trev

[Business Brian]

If everything goes according to plan, there's a real danger I'll have to become VAT registered. I'm not sure that's a good thing. Maybe I should play the business to keep within a turnover of £40,000 in any 12 month period?

[trevHCS]

If you're heading way over £40K/year then its probably worth it as long as the profit is also increasing. At least that way you can claim the VAT back on anything you buy in for the business and probably other stuff as well like company car (although that has its own pitfalls).

Then again, I don't have to do the accounts so don't deal directly with VAT all the time. I'd guess also if your VAT registered people will think you're a bigger player and more established.

Trev

[Business Brian]

The only trouble is that my profit would come from services and advertising - and I'm not sure there's much VAT involved in my purchases. The biggest cost by far is my labour costs.
 
But...high ideas of mine, really. We'll see how it goes.

[trevHCS]

Thats 17.5% of your advertising costs for starters claimable although I'm not sure what happens if you're advertising with American companies. VAT from what I hear is a right old pain to deal with especially if you have to keep accounts for about 5 years, but can be also worth it especially if you have an accountant to sort things out for you.

As for high ideas - well, you can't reach the summit of a mountain without setting out to get there...

OK, end of the really bad wise-man type advice.

Trev

[altyfc]

Hi Brian
 
I'm sure you'll find it's only a matter of time before you find yourself having to become VAT registered.  I've a funny feeling the turnover threshold is a little higher these days, but I'm sure it's a level you'll find yourself reaching in the not too distant future.
 
Aaron

[Business Brian]

Well, at £40,000 per year I wouldn't mind worrying about it.
 
If I focus on British companies it actually shouldn't be too much of a problem - although it'll increase my charges, I presume most larger companies won;t be put off paying VAT anyway. It's if I were forced to charge less to counter-balance VAT that I'd worry.

[altyfc]

No, that's right... any British company of any size won't be phased by you charging VAT.  It'd probably be expected.
 
Aaron

[Business Brian]

I certainly hope so. Maybe one day I'll find out.
 
One day at a time...