Early this year when I asked entrepreneurs which hurdle they badly need to overcome this year to move their business forward, pricing came top of the list. I can relate to this challenge. When I launched Mkazi Bizz Events magazine last year in February, I had no idea how I would draw the rate card! I wanted to calculate the prices based on the value I believed I was offering, but how was I going to calculate that value? Was it better to compare the prices of existing publications and come up with a slightly cheaper option? Or should I base the pricing on my expenses? And since the second option gave me really low prices, would I not be accused of practicing petty price undercutting? Three rate cards and countless sleepless nights and prayers later, here are the three lessons I’ve learned so far.
1-The value you give your products doesn’t mean much. Aren’t we all in love with our products or services? Aren’t we convinced that we have come up with the next big Mpesa and that we have the right to charge premium shilling for it? Then it doesn’t take long for us to understand the true value of our offering – as determined by those customers who vote with their money.
2-Do You Know How Much You Spend? “I see money coming in but I don’t know where it goes!” Does this sound like you or someone you know? Then you need to address the issue urgently because, before you decide on how much you will be charging for your products or services, you need to know your costs. Knowing your direct and indirect costs, down to how much you spend per item per hour, will serve as basis of how much you should charge for your products or services. This is because the money you get should cover your expenses.
3-Decide on the Profit Margins. For your business to be sustainable, it has go generate some profit. The general rule is that the price of an item should be equal to twice the costs engaged in producing it; meaning a 100% profit. According to business coach Vincent Ogutu, you should calculate a profit that’s not less than 40% of your expenses.
How do you set prices? Please share with me in the comments below.
Your Friend in Biashara
NOTE: Is pricing is a challenge to you? I am happy to invite you to the Top Achievers Network Quarterly Meet for a session on Costing and Pricing with David M. Tanki, a Director at Lan-x Africa Ltd a company that provides HR and Financial Services to SME and Corporate in the Eastern Africa Region. As an author, David Tanki has contributed extensively to Management magazine.
The event will take place on Friday 26 May 2017 from 6pm to 9pm at PrideInn Business Westlands, Westlands Road near Graffins College.
Charges: Members= Ksh.2500 / Non-members= Ksh.3000
Exhibition: Members= Ksh.5000 / Non-member=Ksh.10000
Please make payment by Lipa na Mpesa/Buy Goods/Till Number 330580.
RSVP: Kanyi 0722573003