As independent business owners, there are many challenging questions around how to set our rates. We need to have a profitable business, and we need to ensure that our customers can and will pay the amount that we are asking. This is true in both product and service industries.
If you are selling a product, what is the correct markup? You have to take into consideration the hard cost of the product, time invested in ordering and processing, as well as normal business overhead. What is the correct amount of profit that your company should make over covering your costs?
Once all these numbers are figured out there is the even harder question of, what are your customers willing to pay? If you have to sell a product for $300.00 per unit to cover your costs, but your customer is only willing to pay $200.00 for the product, you are going to have to cut costs somewhere in order to make ends meet.
In the service industry business owners get to start asking questions like, what is my time worth? How large is the demand for what I do? What is the industry standard?
A good rule of thumb in any industry is that if you are busier than you want to be, it is time to raise your rates. In a product based business this may be demonstrated by an inability to keep inventory on the shelves. In a service business, if there are no longer enough hours in the day to provide quality services to everyone who want you, you are under-valuing your own time.
The Small Business Development Center (SBDC) is a great local resource that can help you determine the best rates for your industry. Polymath can help by producing the correct reports on your sales and margins, and working with a great local coach can help you feel confident in your value.