marketing, startup-costs, pricingRecently I have started a digital marketing agency (previously, Freelancer). I would like to know, how can I set price for my services?.
##Overhead & Profit Calculation: When I use to be a freelance I just charge by the project. But now, circumstances have changed, and we have an overhead. So, what I need to charge my clients to cover the overhead and be profitable now?.
##Multiple Service: We have over 10 services. How will each individual service be priced? I mean I can’t just calculate on one factor and set the same price for all services, it doesn’t sound fair to the client.
##Example, Company X:
Overhead: $1000
Services:
TL;DR: pick an hourly or daily or weekly rate that makes your numbers work, and chase clients that are willing to pay that much.
First off, there are multiple ways to price a product or a service, which you can read about here:
https://startups.stackexchange.com/questions/7499/how-do-i-set-a-price-on-my-product/7500#7500
https://startups.stackexchange.com/questions/5733/how-to-find-the-correct-price-and-discount-based-on-customers-purchase/5735#5735
Assuming you’re not in market-based price limbo and that you stick to cost-based pricing (i.e. the easiest to implement), keep in mind that there are two types of expenses in a business: fixed and variable. Your fixed expenses are there even if you’re not selling. Your variable expenses are those that strictly relate to actually producing whatever it is that you’re outputting.
Most businesses have a lot of fixed expenses and few variable expenses at first glance. Because, well, those salaries need to get paid no matter what. But if you dig a bit deeper, you can often treat a lot of fixed expenses as variable expenses after breaking them down by project, activity, whatever is relevant to you. In a factory for instance, you ideally want things like worker salaries broken down per unit of production when considering costs and prices, even if your accountant tells you “hey, those are fixed expenses”.
If you do that with your business you’ll end up with two things:
How often “often enough” is depends, of course, on how high “for more” is. The higher your profit margin, the less often you need to sell to break even. Pick a number that works and call it a day.
But all of the above is very theoretical.
It’s useful to have in mind, but in practice there’s a little bit more to it because the ugly realities of market demand and production capacity kick in.
Closer to the ground, you actually want to ask yourself two things:
Each answer gives you a number that’ll help you guide your pricing decision. What the figure is exactly is mostly arbitrary, so long as a) it covers your costs, b) you’re able to find buyers who write you checks, and c) you’re not too overworked, keeping in mind that you’ll be spending time on marketing, sales, and a slew of management and administrative-related tasks.
As a tip, charge by the day (or half day) rather than by the hour. Doing so spares you from clients who breath down your neck asking why you invoiced 15-min of your time to write them an email. (Mind the definition though. A day doesn’t mean “I’m putting 8 productive hours on you.” It actually means “I’m putting a normal day on you, including clearing out my emails, doing admin chores, and taking an occasional break” - so 6-7h of productive work in practice.)
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