Curated Business Ideas : 104. COSTING AND PRICING YOUR PRODUCTS AND SERVICES - Jack’s Digital Business Collection - Digital Business Ideas

104. COSTING AND PRICING YOUR PRODUCTS AND SERVICES - Jack’s Digital Business Collection - Digital Business Ideas - Digital Entrepreneurship - Digital Entrepreneurial Ideas - Jack Lookman Limited - Rita Nnamani - Jack Lookman - Olayinka Carew - Entrepreneurial Ideas - A Collection Of Digital Business Ideas - Digital Entrepreneur - Ola Carew - Amebo - Empowerment and Inspiration - Empowering And Inspiring Generations - Olayinka Carew aka Jack Lookman

Pricing is crucial, whether you're selling handmade jewellery, running an online coaching program, providing freelancing services, or launching a technology product. The correct price attracts the right clients, helps you meet your profit objectives, and reflects the value you bring to the table.

However, many people struggle with pricing. They pose queries such as: How will I know what to charge? Am I too costly or too cheap? What happens if no one buys at my price? How should I calculate my costs properly?

This guide is here to help you answer those questions clearly.

104.1. SECTION 1: UNDERSTANDING THE BASICS OF COSTING

Costing is the process of determining how much it costs to manufacture and deliver your product or service. This covers raw supplies, tools, as well as your time and abilities.

There are two major categories of costs:

1. Direct costs.

These are the costs associated with manufacturing or delivering your product or service.

Examples: Materials: (fabric, wood, packing), software subscriptions (to digital services), your time (estimated using hourly rate), tools or licenses needed to finish a job.

2. Indirect costs (overhead).

These are expenses you must bear regardless of how many sales you make.

Examples: Internet, rent an office space, electricity, marketing and promotions.

To build a sustainable business, both direct and indirect costs must be considered.

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104.2. SECTION 2: CALCULATING THE COST OF A PRODUCT

Let us proceed using a simple example:

Imagine you're making a handcrafted candle:

• Wax: ₦500

• Jar: ₦300

• Fragrance costs ₦200.

• Label and packaging: ₦150.

• Your time (1 hour) is ₦2,000.

• Direct cost per candle: ₦3,150.

Now, add your indirect charges. Assume you spend ₦10,000 monthly on electricity, Wi-Fi, and other company expenses. If you intend to sell fifty candles this month:

₦10,000 divided by 50 equals ₦200 overhead per candle.

Total cost per candle: ₦3,150 + ₦200 = ₦3,350.

This is your cost price. You must now include a profit margin when determining your selling price.

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104.3. SECTION 3: CALCULATING THE COST OF A SERVICE

Let’s say you’re a freelance social media manager. Here’s how to calculate your cost:

• Time per client monthly: 20 hours

• Desired hourly rate: $20/hour

• Tools: $50/month (e.g., Canva Pro, scheduling tools)

• Internet and electricity: $30/month

If you plan to work with 3 clients per month, split the $80 overhead:

$80 ÷ 3 = $26.67 per client

So, your cost for one client:

(20 hours × $20) + $26.67 = $426.67

That’s your baseline cost. Now you’ll add your desired profit margin to determine your final price.

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104.4. SECTION 4: WHAT IS A PROFIT MARGIN?

A profit margin is the amount you add on top of your cost to ensure you make money. There’s no one-size-fits-all, but here’s a general idea:

• Low margin (10–20%): Competitive, low-risk industries

• Standard margin (30–50%): Service-based businesses, retail

• High margin (100%+): Digital products, luxury items, handmade goods

How to calculate it:

Let’s say your cost is ₦5,000

You want a 40% profit margin:

₦5,000 × 0.40 = ₦2,000

Selling price = ₦5,000 + ₦2,000 = ₦7,000

Or you can use a markup:

Markup = (Selling price − Cost) ÷ Cost × 100

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104.5. SECTION 5: COMMON PRICING MODELS

Depending on the nature of your business, you can use several pricing methods.

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104.6. Cost-plus pricing

This is the most basic. You calculate your costs and include a fixed margin.

This method is best for products and new sellers.

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104.7. Value-Based Pricing

You price depending on the value or transformation you provide to the consumer, not just the time or materials.

Ideal for: coaches, consultants, creatives, and educators.

For example, a business coach may charge $500 for a 2-hour session based on the value offered.

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104.8. Tiered pricing

You provide various packages at varying prices: basic, standard, and premium.

Best for: Service providers, SaaS platforms, content creators.

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104.9. Hourly or Day Rate

You charge by the hour or day, especially in freelancing or consulting.

Best for: Freelancers, virtual assistants, developers.

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104.10. Project-Based Pricing

You price an entire job rather than by the hour.

Best for: Copywriters, designers, event planners.

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104.11. SECTION 6: GLOBAL PRICING CONSIDERATIONS

If you're selling abroad or online, there are a few factors to consider:

• Currency conversions: Use resources such as PayPal's currency converter. Consider adding prices in both domestic and foreign currencies.

• Payment Processing Fees: Platforms such as PayPal, Paystack, and Stripe charge between 1.5% and 5% per transaction. Include that in your pricing.

• Purchasing Power: Pricing should be competitive and affordable in the markets you serve. You might charge less for local audiences and more for foreign clients.

• Location-Based Packages: Some creators charge one price for local clientele and another for worldwide clients. Make sure the value is justified.

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104.12. SECTION 7: MISTAKES TO AVOID IN PRICING

• Under-pricing: This is typical, particularly among novices. Remember that reduced pricing does not automatically attract more customers; they frequently indicate low value.

• Ignoring your time: If you don't account for your time, you are working for free. Time is a resource. Always include it.

• Making excessive comparisons: Yes, research your competitors; but don't simply replicate their rates. Their costs and aims may differ from yours.

• Not testing: Prices are not fixed. It's fine to start small and gradually raise as you gather expertise and testimonies. Experiment with different price points and see how your audience responds.

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104.13. SECTION 8: HOW TO INCREASE YOUR PRICES WITHOUT LOSING CUSTOMERS

When you're prepared to charge more:

• Communicate value clearly. Tell clients what they'll get and why it's worthwhile.

• Add extra value. Include bonuses, extended support, or extra services.

• Show proof. Share testimonials, case studies, and results.

• Give advance notice. Inform existing customers of the impending new prices and provide them with one more chance at the old rate.

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104.14. SECTION 9: PRICING DIGITAL PRODUCTS

Digital products—like eBooks, templates, or courses—have no production costs after the first version, so your profit margins are higher.

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104.15. Things to Consider

• Time spent creating the product

• Design and software tools used

• Marketing and ad spend

• Platform fees (Gumroad, Payhip, etc.)

Many digital creators aim for 3x to 5x the creation cost.

Example:

Time spent: 20 hours × $15/hour = $300

Tools/Design: $50

Ads: $50

Total cost: $400

If you sell your eBook for $20, you need 20 sales to break even. Everything after that is profit.

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104.16. SECTION 10: PRICING PHYSICAL PRODUCTS

For physical products, don’t forget to include:

• Shipping costs

• Packaging materials

• Production time

• Transaction fees

A common formula is:

Retail Price = (Total Cost) × 2 to 3

So, if your total cost per product is $10, your retail price might be $20–$30. This accounts for profit and unforeseen expenses.

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104.17. SECTION 11: USING PSYCHOLOGY FOR PRICING

Humans react to specific pricing schemes. Here are a few tricks utilised by top businesses:

• Charm pricing: $19.99 instead of $20—it feels cheaper.

• Anchoring: Show a higher price first, then your real price looks like a deal.

• Bundling is the practice of offering many products or services at a single price.

• Urgency: "Only 3 slots left" or "Early bird discount until Sunday" prompts action.

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104.18. SECTION 12: TOOLS FOR BETTER PRICING

• Use Google Sheets or Excel to track costs.

• Wave / FreshBooks - for tracking spending and revenue.

• PayPal / Paystack / Stripe - for accepting payments

• XE.com or OANDA: for currency conversions.

• If you charge by the hour, use Toggl or Clockify to track time.

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104.19. In conclusion

Pricing is more than simply maths. It's also about confidence, planning, target audience, and knowing your worth. If you continue to underprice, you will burn out, miss chances, and struggle to grow. However, when you learn to appropriately cost your job and price with intention, you may create a business that pays you fairly and attracts the right clientele.

Thank you very much to all our readers. You are much appreciated.