Pricing your work

As an entrepreneur, you need to remember that the hourly price charged to your customer is not the same as the hourly pay you would receive as an employee, since on top of your gross wages, your employer will also have paid employer contributions.

Keep a record of the hours you spend on business management, marketing and sales work. In most cases, you will not be able to charge any customer directly for these hours of background work, so they must be covered by your hourly price.

In addition to your own hourly pay, you also need to take all other expenses related to your business into account when determining the billable prices. These include, for example

  • value-added tax
  • YEL premiums and other insurances
  • tools, phone, internet connection, car
  • travel expenses
  • workspace rent
  • professional literature and trainings

Carefully considered pricing

Pricing is crucial to your company’s profitability. Carefully calculate how much it costs for you to produce a product or service before determining the sales price for it.

The three main factors to consider when pricing are the customers, the competitors and the costs. These factors are also the basis for three commonly used pricing models.

The value-based price consists of the value your product or service creates for the customer. Think about what added value customers are prepared to pay for. Will they pay, for instance, for the image, product quality, good customer service, a warranty or the location?

Market-based pricing is based on the balance between supply and demand. In this pricing model it is essential to know your competitors price level. If you sell products or services at much lower price than your competitors, you may be able to gain customers quickly, but it can be difficult to raise the prices later on. You can use temporary devices such as introductory offers, but do not permanently compromise your margin.

In other words, avoid underpricing your product or services. Price is always also an indication of quality. It is not worthwhile ruining your image of quality by setting the price too low.

Cost-based prices are determined by adding a profit margin to the cost price of the products or services. To calculate the sales price, the variable costs (such as the purchase price or material costs) are multiplied by a pricing factor.