Many micro business owners struggle with what to charge for their services or products. If they charge to much they may never attract customers, but if they charge too little they may not cover their costs or make a decent profit.
Here are some tips for setting a price that you and your customer can live with.
- Market survey-Ask your potential clients what they are willing to pay. You may be surprised at what some people will pay for your unique service or product.
- Competitor price-Learn what your competitors charge. You can ask them directly or ask customers what they have paid in the past. A teenager giving piano lessons asked several other teenagers and parents about the going rate for beginning piano lessons to help her set her price.
- Cover your costs-You must know what your costs are and then add more to cover taxes and your desired profit. One unlucky micro business owner only charged enough to cover her costs and forgot about taxes and making a profit to grow the business, let alone paying herself.
- Don’t forget taxes– Work with an accountant to calculate what you will owe in federal, state and local income taxes. As a micro business owner you will also be paying self employment tax to cover social security and medicare. CPAs frequently tell small business owners to allow for 25-35% of their profit to pay for taxes.
- Value your time-Some micro owners charge by the hour they are with a customer (such as tutoring by the hour), but fail to realize that they spend many hours outside of customer time. Travel time and preparation time should be considered when you set an hourly rate.
- Adjust when needed-Adjust your prices if your costs increase, or if you find you are seriously under priced compared to your competitors. Also increase your prices if you find your product or service is in demand.
- Adjust as you gain experience-An experienced worker is more valuable than a new one. After a few years of doing bookkeeping, a micro business owner made a plan to increase her rates for current clients over a three year period, but she charged new clients the higher rates from the start.
My book, Money and Taxes in a Micro Business will help you understand taxes!
Carol Topp, CPA is the author of the Micro Business for Teens
