Pricing Your Products or Services 5

Should I charge all customers the same fee?

In fairness you should charge everyone the same rate. In reality, however, many small service businesses alter their fees somewhat according to who the customer is, how much the customer can afford to spend, and how badly they want the customer's future business.

TIP: If you charge different clients different fees for similar work, get them to agree in writing not to disclose your fees to other individuals or companies. You might also tell a client that the low fee you are charging is a special rate because you value their business, enjoy working with their staff, etc.

Should I charge for travel time?

Some businesses charge for travel time, and others don't. Those that do charge reason that the time they spend traveling is time they can't spend on other income-producing activities. You will need to decide what's right for you based on what others in your field do, how badly you want any individual customer, and how much time you will spend traveling for that customer. If you do opt to bill for travel time, be sure your customers are aware of that fact before you start work on any project for them. A written explanation of all your fees presented to the client before you start a project will go a long way toward avoiding billing misunderstandings after you've completed the work.

How much should I charge for travel time?

Travel time is usually billed at either the full hourly rate or one-half the hourly rate.

Should I undercut the competition?

If you have many competitors and you are not known, you may have to charge a little less than your competitors to make a name for yourself. Some people who run service businesses say being faster and better is an attractive benefit to their prospects. Others say underpricing can backfire. One disc jockey, for instance, lost a sale when he quoted a price $600 lower than one of his competitors. The client felt the lower price reflected a lower level of professionalism. Others have found that increasing their prices considerably increased their number of clients.

TIP: One strategy that works well for many one- or two-person businesses is to start at a price a little below what the competition charges (if that price is profitable) and then gradually raise prices, eliminating marginally profitable customers as the business grows.

What costs are associated with selling products?

Following is a list of some of the expenses you may expect when you sell products, The list is not all-inclusive, since no two businesses are likely to incur all the same costs. It will, however, help you determine what costs should be factored into your selling price,

• wholesale price of products you will resell
  
• price you pay for materials and supplies used to manufacture the product
  
• outside manufacturing costs you may incur (for instance, to have dies or molds made or have a product produced to your specifications)
  
• machinery and tools needed to produce the product
  
• preparation and production of instruction manuals (writing, design, typesetting, printing, and binding costs)
  
• preparation and production of other items shipped with the product
  
• packaging (box, Styrofoam filler, shrink wrapping)
  
• package design cost
  
• licensing fees or royalties
  
• cost of warranty cards and registration cards (including business reply postage) included with the product
  
• cost of sales brochures, press kits, and other marketing materials
  
• advertising, copywriting, printing, duplication, or other services you may need to purchase
  
• labor costs (your own plus that of any employees)
  
• employee benefits, such as vacation time, sick leave, pension plans, insurance (again, don't forget to calculate in an amount for benefits for yourself)
  
• employer share of FICA (and your own self-employment tax if the business is not incorporated)
  
• state unemployment and compensation insurance costs for employees
  
• trade show expenses
  
• sales literature preparation and printing
  
• web site development and maintenance
  
• publicity expense
  
• mailing costs
  
• mailing list rental costs
• office overhead (rent, maintenance, phones, and other utilities, equipment, equipment repairs/service contracts, office supplies, etc.)
  
• business insurance and product liability insurance
  
• legal and accounting fees
     

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