How do you price your product, whether that’s a service or actual, physical product? The very first thing that you have to understand is your cost. That is everything. Those are things that don’t change based on the number of clients that you have. Your rent is a fixed cost. Your utilities, phone, things like that, those are fixed costs. Your marketing can be a fixed cost as well. You may be spending five hundred or a thousand dollars a month on Facebook ads or what have you, those are fixed costs.
Then add up your variable costs. Your variable costs will be payroll if your trainers are not salaried. If you pay them a salary, that is a fixed cost. It doesn’t change based on the number of clients that you have in your business.
Once you understand your fixed costs and variable costs, now you can figure out what your ultimate cost for providing a service based on the number of clients that you have. With that, then you have your base. That’s your break-even. You never want to go lower than that. Actually, I like to double my costs – let’s say that’s 30 dollars an hour, double that to 60 dollars an hour, and that’s what I ultimately am going to charge. That’s step one. Now I need to make sure that I have margin. That’s what you get to keep in your pocket. That’s what helps you become a business owner instead of a business operator.
The second thing I look at is what my competition is doing. Not that I really care too much about my competition, because, at the end of the day, if you’re providing an exceptional service, then competition really doesn’t matter at all, but I do want to get a general feel of what is in the marketplace and see how I am compared to that. If I am a high level brand, high level of service, then I’m going to be priced at a premium level. If I’m more of a general brand and I just want to create some volume, then I’m going to be kind of middle of the road, and I’m going to make sure that I’m priced appropriately to attract the clients.
It’s not always true that if you lower your prices that you’re going to attract more people. That is absolutely not true. It’s generally the number one issue that owners get — that the product is too expensive. So what do they do to combat that? Lower the prices. Now it’s not expensive, but you know what? You’re not going to attract any more people. What they were telling you is that you’re not showing me the value for what you’re charging.
Don’t automatically lower your prices if the biggest objection you’re getting is price. You might want to rethink your sales presentation. Actually, I just did that with a client, and it was probably one of the most enjoyable things that I’ve done in a while. You may need to rewrite the scripting and work on the way that you ask questions to get the right response to get the prospect to buy. It’s usually never about price.
Those are two tips I have for you this week. Look at what your fixed costs are, your variable costs, and then double it to come up with what you get to keep and what you should charge. The second is look at your competition, and make sure that you’re within with what other people are charging in the marketplace that you are serving. If you’re a premium brand, you need to charge those premium prices.
If you want more information on how I can help you, just send me an email. Tom@tomjackobs.com. I’ll be happy to talk with you and set up a consultation. We can go through all the things that are going on in your business so I can help you take that to the next level.
