How Entrepreneurs Value Their Time
When it comes to running a small business, your time is one of your most valuable assets – and yet many entrepreneurs leave themselves out of the equation, hurting their business more than they may realise. Thus, one of the most important decisions you make as an entrepreneur is determining the price of your products or services.
Take it from Ethan Taub, CEO of Loanry – "When you are looking to price a product or service, this goes beyond that single item alone. The development, process and continuation of changes you make to that product all go into the price. The customer is not only paying for one thing, they are paying for the company and the brand they are supporting. Without that money, more products could not be made, and the company could not run. The value of the time of the people who worked on that product is how you calculate it overall ... You cannot just charge people for the 'brand' bit, you need to factor in those hours you spend developing and working before the product was even ready to be launched."
While there is no correct way to determine your prices, your product price should include a value tied to your time in a way that suits your business model. Below, we collected advice from business owners around the world to help you make the right choice for your business and its long-term goals.
Do The Math
Gather all your numbers and determine the raw cost of your product to start. Hear from Matthew Burke, The Complete Guide to Archery's Editorial Director, who uses a simple profit margin percentage:
"When it comes to pricing my archery products, I calculate the value of my time by first looking at what the cost of materials will run me, and then at what a mass-market alternative would cost. Whatever it is, that's my base, and I won't go below that price – and I usually start by adding about 10% of that base cost to my item."
Our product pricing guide can help you estimate your costs per item.
Research The Industry Standard
Rowyn Golde, co-owner of Team Manticore LLC says, "Calculating the value of my time when pricing products takes a number of steps. Everything starts with research. I look at how much good quality raw materials will cost, including in bulk. I try to keep the market in mind as well, as a starting point and to keep my audience's expectations in mind. Basing price solely off of whatever is happening with similar items on the market only goes so far, so then it comes down to the time expended for each individual item. This may include testing and/or packaging time as well.
Beyond that, I have my experience and all the problem-solving I've done over the years. The skill required for doing what I do is what separates the unique products at Team Manticore from somewhere else. Not necessarily better, but different and marketed towards a specific niche. That's another thing to keep in mind, who your audience is. I'm careful to be sure I'm getting at least minimum wage, taking into account how much we donate. This can make the initial calculation of a new product a little more complicated. As an example, smaller items are harder to stitch than larger items because of the hand-done nature of it and may wind up taking more time than expected. I also want to leave room for discounts and special sales in a way where I'm not actively losing profit for it."
Identify An Hourly Rate
"They say time is money, and in my opinion this statement is so true," says Andrew Roderick, CEO of Credit Repair Companies.
"When you are calculating your time spent on your product, how do you do it? For me, it's simple. I love what I do, so the time spent on the product is worth a fraction of what the product is. I take great care in what I produce and it means a lot to me personally to sell a product that is made well and presented in a way in which I personally would be happy with. But obviously there are other costs to consider, materials, staff and equipment. So to be able to produce more efficiently and to a wider audience, you will have to calculate the cost of your time to be able to maintain the productivity of the product or the service. If the product takes me a day to make, I would calculate the average salary for someone else to make it for me so I have a figure in mind."
Consider The Handmade Premium
Knowing your audience is key when it comes to pricing your time and your products. If your business provides a specially crafted product, you may be able to set your price point higher.
"As manufacturers of a handcrafted product since 1932, we proudly market the fact that our self moldable custom arch supports and orthotics are manufactured by hand. This hand oriented manufacturing process is reflected in our pricing as most competitive products in the shoe orthotics niche are machine-made," explains Darrin L. Fashaw of Corefit Orthotics.
"The labor hours required to produce our product represents roughly 60% of its retail. This labor premium is paid by podiatrists, medical professionals and retail customers who appreciate the more than 90% wearer satisfaction we've consistently achieved by staying true to a handmade production process which has been a part of our family owned business for over 88 years; this includes use of the original molds built and designed by our founder and research scientists."
Weigh Your Market Share
As your business grows and commands a greater following, you may even be able to up the price – as long as the quality and business experience stays the same.
"I've been surprised to find that people are willing to pay a high premium for handmade archery goods," shares Matthew Burke. "As more and more people use them (and recommend them on their own social media pages), I'm able to increase the price a little bit. Once you gain just a foothold in your market, you can usually feel comfortable charging more."
Test It Out
Consumers aren't always price-conscious. For Matthew Burke, it's a process of adjustments.
"I inch the price up and see how potential customers react. If there's no difference in customer interest, chances are I've been under-charging for my goods. If there's only a little bit of push-back, I'll keep the price the same and see what my income looks like after a few months. The name of the game is time – with enough time, I can let my consumers tell me how much they're willing to pay."
"Bottom Line: Track how many hours you spend to complete a product, assign a fair/reasonable dollar figure to this, and add the value to the total cost of production. Slap on your desired, and reasonable profit margin, and there you have the price of your product." That final piece of advice is from Joe Bailey, Business Development Consultant at My Trading Skills.
You know your business and its customers best. With the help of these entrepreneurs, you may find that pricing your time and services is actually exciting and empowering!