How to Create a Price List For Your New Business in 8 Simple Steps

Whether you are providing a service or selling products, as a business owner, creating a price list is one of the most crucial tasks. A clear price list assists with consistency, among other things. The purpose of this post is to assist you on how to price your products or service and ultimately create a price list for your new business.

So, you want to start a new business and might already have the idea in mind. At some point, preferably before launching, you will have to develop a price list for your service or products. Although pricing services are more involving than products, both are equally tricky.

Determining the price for a product or service is not as straightforward as one might think; undercharging is a considerable problem amongst entrepreneurs. A lot of calculation goes into solidifying a price that covers all of your costs while providing profits.

To create a price list for your new business you will need:

Step 1: Determine Your Costs

Before creating your price list for your new business, you will need to determine costs. Costs are divided into two major components, direct and indirect costs.

Direct costs are directly connected to the production of goods or the specific service you are providing. For instance, if you make candles, direct costs would be the paraffin, the wicks, fragrance oils, the container, etc. Likewise, the direct costs for a service would be all the supplies you are purchasing for that specific job.

The indirect costs are associate with the production or service. Using the same candle example, indirect costs would be the depreciation on your boiler, the thermometer, utilities, etc. For service, the tools you are using, the truck you drove to get to the job site.

In other words, indirect costs are the expenses that you need to run the business in general. Before determining your direct costs, you should first calculate your overhead cost.

For servicing companies, developing an indisputable price list might not be possible. A quick solution for this problem is to create a base price. It is not practical for a painter, for instance, to create a solid price list. In this case, a base price would be, “interior paint, one color, one coat: $0.45 per square foot.”

You can check this post for more details on how to come up with a base price.

Step 2: Price Research

Conducting price research will provide you invaluable information. Start by checking websites that sell similar products. That’s an important exercise; even if you have a storefront, keep in mind that most people start shopping online. Similarly, visit your local competitors, see how they have their products displayed, and most importantly, their prices.

If you provide services, you can place an anonymous call to your competitor for a quote; or have a friend make the call. Keep in mind that depending on the service you are providing, they might require a visit for a quote.

However, the best method is hiring a third-party market research company. While you might have to pay a hefty fee, you will acquire crucial intelligence.

Step 3: Define Your Market

This step is directly related to the services or products you are offering. How do you want to position your business? Are you a budget-friendly or luxurious high-end?

Market positioning is crucial when you have a lot of competitors. Before setting the price, is there a market share for the product or service you are offering? Conversely, if there is no competition and a demand for what you are offering, then you are in great shape.

Those are essential questions that must be answered before creating a price list for your new business.

Step 4: How Much Do You Need to Make

After establishing all your costs and understanding your market, now you should consider your profit margin. The formula is straightforward: sales – costs = profit.

Even after adding your profit margin, your prices should be within reach of your target market. If your profit is not where you want it to be, you can make it grow over time. Also, you might want to consider starting smaller and grow as your customer base and sales increase.

Step 5: Avoid Overpricing

Many businesses are tempted to set their prices high. Your customers might not be willing to pay for your goods or services. Thus, making it difficult for your business to profit.

However, setting your price depends on a lot of factors. If your candle price is $35, and the average price is $18, unless you can justify such a high price and have a group of people willing to pay for it, you might not see any customers.

Some businesses set prices high, fearing they are not making enough money. Whatever reason you might feel that you need to overprice, keep in mind that your business might not be profitable right away, it will take time.

If your price is way above your competitors, and you don’t have enough wiggle room, perhaps you should consider a different product or service.

Step 6: Don’t Underprice

Conversely, some businesses are keen to set prices lower than competitors. They think customers will be encouraged to buy their products or services.

You have to be careful when underpricing. For one, you might not be able to cover your costs or make a profit. At the same time, customers might see your products or service as cheap. While there is a market where the price is the most important factor, you must know your clientele before trying to apply this tactic.

Step 7: Make a List of What You Sell

Itemize all the items you sell or services you provide. Some companies set a price, and it is the same for all customers — most common in retail. Other businesses require more tailored pricing.

As mentioned before, it is important to have a base price as guidelines. Otherwise, you will find yourself under and overpricing.

Step 8: Format Your List

For storefronts, your newly created price list for your new business is straightforward. If you are using a POS system, all you have to do is create the items and price them.

On the other hand, service providers might have some extra steps. When formatting your price list, I highly suggest starting with an excel spreadsheet and import the list into your invoicing software. The spreadsheet comes in handy, especially when creating SKU numbers.

Conclusion

Creating a price list for your new business is one of the most important tasks you must accomplish. The secret sauce for being successful is first to understand your market and your clientele. Also, covering costs and adding enough for a profit margin for reinvesting.

A few other principles to consider, a price research will provide you invaluable information to avoid underprice and overpricing. Understanding the market around you is crucial to creating a price list that will bring success to your business.