It has been six years since I started my own visual communications consultancy in New Delhi, India. I’ve been fortunate to work with leading brands, both in India and abroad.
As an entrepreneur, my biggest challenge was not conceiving ideas, instead it was always: How can I associate value and/or price to my idea? Is there a measure, is there a conclusive method, is there a math behind the tag and (most of all) when should I stop creating further?
We receive inquiries from all kinds of clients (e.g., broadcast giants, manufacturers, IT companies, small-to-medium sized companies, and startups yet the scope, time spent, and brain drain are always the same.
How do we affix a value-price to our services without losing clients and new business opportunities?
1. Know the pitfalls of underpricing and overpricing
Underpricing can hurt the overall image of your brand, products and/or services, while overpricing can alienate valued customers.
The biggest mistake we made early on was believing that good quality at a low and affordable price would drive sales in India and allow us to grow our market impact better and faster.
We learned the hard way. The result of selling at a lower price was devastating. We were perceived as cheap and started losing out on better deals and bigger clients.
It was only our ability to sell at the right price that drove the sales (and not merely the lowest prices). A successful business hinges on mastering your ability to sell at a price of your choice.
In contrast, if you think overpricing is a better pricing strategy, then you may be on the wrong track. Overpricing can kill a business and cause customers to switch to your competition.
Instead, know the market — study how much your preferred customer desires to pay. Compare similar products and services that are available in the market. Position yourself with others who offer greater or similar quality. Conduct an internal analysis as to where you stand in terms of quality, and pricing.
Get some external help if you feel that you are biased towards your own services. For example, you can hire a team of interns to take your product to potential customers and conduct a quality survey to help identify your value proposition to potential customers.
2. Know your costs
It’s important to calculate everything: from your salary, staff salaries, overheads, marketing, to return on capital, etc. Initially, we created a spreadsheet that covered all the costs for a year including the fancy dinners (i.e. entertainment expenses for clients), costs for future expansion, depreciation, and even some of those random cold calls which never yield results.
The tally told us the amount of revenue that we would need to cover costs for a specific period of time. Then we knew how much we had to markup our services to make decent money.
3. Understand your revenue target
It’s important to know how much you should make to cover costs and margins. Once you have an idea, then look at how much business you can actually do with the amount of time and talent that you have available.
Let’s say the revenue target is X and the number of clients you can manage in a year is Y; then X divided by Y to get a fair sense of the price that you should charge per project.
4. Always know your competition
Always understand how your competition would quote for a similar offering as yours. Analyze the services offered and compare them with yours. In case you are proposing anything more, then you can justify a price increase.
Always remember that customers should find value in additional costs. Do a small online or direct survey to understand how customers perceive you and your competition. It’s important to make sure that you exchange good value for the money customers spend with your firm.
5. Keep evolving
There are a few more factors that we kept in mind when we were moving forward with pricing our offerings. The price could never stay stable based on the cost of manufacturing and a fixed markup. There were a lot of considerations that influenced the pricing fluctuations. For example:
What can a client afford? How can we customize our services to match the budgets of our customers and deliver a quality product?
Are we seen as an entity that provides cheap services or are we so overpriced that we are losing out on medium-sized business opportunities?
Are we at par with our competition? Make sure that you are not quoting too low or too high compared to your competition.
How much can you deliver with the talent currently available to you?
The right price starts with clarity
The most important lesson that I learned after being in business for six years is this: Be very clear as to why you got into business in the first place.
The reason why people like us leave jobs is to have some freedom and to make sure that we earn more than what we could imagine in a job. Many of us mistake our businesses to be a platform that gives endless freedom to be your own boss, an ego trip that places you above others in the workplace.
The reality is that we are in business to make some money and the most important factor that allows us to make that money is to know your costs and when you are selling at the right price. Every business is a living entity and demands a lot of attention and care. Invest your time and effort to know what it takes to allow your business to survive and grow in proportion to your existence and growth.
Now I know how to put a value on my thoughts and creations and use it to my advantage. Stay creative.
This article has been edited and condensed.
Founder and Director of SHRED INC, Shreedhar BS has more than 17 years of experience in the broadcast industry. Formerly the creative director of The FOX International channels and the National Geographic Channels for India, Shreedhar has to his credit 43 Promax awards, National and International. He has been responsible for the branding and packaging of many broadcast giants including Star Chinese – Taiwan, Zee Living – USA, Zee One – Germany, Zee TV – Russia, New 7 – Bulgaria. His vast experience and expertise make him one of the leading broadcast branding experts in the world. Connect with @ShredShredinc on Twitter.