Look at any type of business, irrelevant of whether they’re a major player in the global engineering market or a small but established firm in the local area, they can be split into one of two categories – product or service based.
Whilst it’s by no means easy for any new business to determine how much money they’re going to charge, it’s arguably somewhat easier for the product based businesses, as they have the base price of the product to go by and they simply work there way up from there, taking into consideration on-costs such as the price of the business property and staffing costs.
As you have very little to go by as a base price, determining your rates as a service based business can be extremely difficult and if you’re currently in this boat, the following information should help you along the way.
Work out your lowest possible rate
One of the most important pieces of information you can work out as a small business, you need to know the lowest possible rate that you can accept for your services.
This isn’t just a figure that you should pluck out of the air and you really need to think about what your rate needs to be as an absolute minimum, thinking about any costs that you need to cover, including your own wage.
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Know your ideal rate
The difference between your minimum rate and your ideal rate is likely to be quite substantial, but it’s important that you have a rate in mind to aim for and continually work towards.
You might be able to charge your ideal rate from the start of setting up your new business, but don’t be disheartened if you can’t – it’s a common process for a new business to charge lower rates than they would ideally like to at first, so to build up their reputation and raise their brand awareness.
Look at your competitors
When you’re trying to determine your rates, it can be particularly useful to look at your competitors to see what they’re charging.
Although you shouldn’t mimic their prices exactly, your competitor’s prices should give you a good understanding of what other companies are charging, what you can charge and where you should start.
Take your experience into account
As tempting as it can be to launch your new business with your ideal rates, as you’re going to have no experience as a business in your chosen field, it can be difficult trying to convince potential clients why they should choose you and pay your rates over a more established competitor.
Whilst you shouldn’t undercharge for your services, you need to ensure that the rates you advertise reflect the experience you have – if you worked as a Marketing Manager for 10 years and have now set up a marketing consultancy, you’re going to be able to prove that you know what you’re doing.
If you’ve worked in admin for all your life and have decided to try something different by providing a social media management service, however, if your experience is purely due to a personal hobby, competing against established companies is going to be hard at first.
Determining your rates as a new small business can be particularly difficult, irrelevant of whether you’re product or service based, but by following these points, you should be able to put a good, appropriate starting rate on the services you offer through your new, service based small business.
This post was previously featured on March 29, 2011.