Emily Mahr
Helping Entrepreneurs focus more on their passions, less on paperwork.

Bookkeeping Blog

FAQ about Bookkeeping related topics

How To Price Your Product or Service

Making money is a numbers game, an equation involving how much money and time you put in multiplied to have a profit. In the beginning you might be pricing your products or services to break even, but at what point do you start paying yourself, resulting in profit?

I recommend using a full sheet of paper, and writing things out entirely before moving on to the next step.

Pricing Model Example

If your product/service retails for $395
  1. Make a list of all products/services you pay for that are included in what you sell, and how much you paid.
    • Only include the amount which is involved, so if you use 1/4 of something for each client you only include 1/4 of the price you paid.
    • Total that all up. 
    • Multiple this number by 1.3, and circle your total.
  2. Write down how many hours you spend building and delivering the product, with your hourly rate written next to that.
    • Multiply your hours by your rate, and circle the total.
  3. Add up your circled numbers; that's how much you could sell your product for.
    • This should determine a sale price of the product to still make you a profit, and help designate a clearance price to break even.

The pie chart on the right shows how this should look.

Due to the variables involved in creating and delivering your products, you need to routinely measure if your pricing is in-fact making you money. When you spend money, if it's not the same each time you buy paper, stamps (the price of stamps is raised yearly), or hire a videographer. This requires a price change of your products to accommodate the economy and industry you're in. Also do a price comparison of your direct competition, and if your target market understands if the price they pay is valuable to them.

Things to monitor :

  • Price you pay for materials/services
  • Your overhead costs (electricity, internet, water bill, credit card processing fees)
  • Demand from customers
  • Your hourly rate (are you valuing yourself properly?)

At minimum, you need to re-evaluate how all of these numbers are working for you every year. Getting feedback from customers on how well they liked it, using the opportunity to generate reviews (which do increase future sales from new customers), and considering updating the product are all outcomes of this annual price review. This is common, and why you see new versions of shoes, cars, and clothing every year. This is also why you see companies put older items on sale.

I've created a free sheet to help you with this process, ACCESS HERE.  I suggest making it available in your digital cloud, or Google Drive. This allows you to share with your team members so they understand when to update the pricing on you website, as well as understand the intricacies about each product. 

I'm not saying this is the right way for you to do it, but it's a basic guideline on how to price your offerings. This will work for some, and will be overpriced/underpriced for others. Test it out, feel it out, and make the best decision for you.