It’s undeniably one of the hardest things to get right as a social entrepreneur.

How much should you charge for your product or service?

To you, it’s invaluable, because it’s the reason your social enterprise exists and you know it has been developed to deliver a measurable, positive impact on society. But looking at your product in that way won’t help you form a sensible, market-ready price for it.

There are lots of factors to take into account when pricing your product, and in today’s blog we’re going to cover the most common. They’re approachable and can be undertaken by anyone, no matter how much business experience you have.

Invest time in your market

It’s far too easy to price yourself completely out of the market – and that’s likely to happen if you’re guided emotionally when pricing your product.

You need to know how much customers will pay if you’re to get the pricing right, and that will only come from solid market research.

Speak to your potential customers, take a look at the competition and try and identify gaps in existing pricing models. It won’t take long for the target price range to become clear.

Know your costs

Underprice your product, and you’ll make a loss on every single sale. Whilst that might be an initial tactic undertaken by some businesses, it’s usually undertaken strategically, and with a solid idea of the costs and how they might reduce in future.

It’s imperative that you know every single cost that goes into making your product. Some will be obvious (raw materials, for instance), while others are harder to identify (e.g. staff time).

Remember that the more you make and sell, the higher the costs are likely to be, too. And then there’s your overheads, such as rent, that also need to be taken into account.

Once you have identified every cost, add them together and divide by product volume to work out the per-unit break-even figure. Work from that figure, and you’ll know where you’ll start to make (or lose) money.

Just remember that this is a figure that will change like the wind, so schedule regular reviews of your costs throughout the year.

Think about value

We buy stuff because we expect it to offer value. Your customers will be the same and will know quickly when something is priced beyond the value it provides.

Going back to your market research, consider what the market expectation is in terms of value. The most popular products or services in your niche will provide an indication of what’s valued by customers and the price they’re willing to pay.

Consider VAT

When first starting out, you may not be VAT registered, but there may come a time (all being well) when you need to sign-up, and that will significantly impact your pricing.

If the introduction of VAT hits your profit margin, can you make up for the shortfall by increasing the margin on certain other products without denting your position in the market?

It’s also important to think about pricing models for different territories if you plan to sell online or export to other countries – but that’s for another blog post!

And finally…

Remember – you probably won’t get the pricing right first time. The key lies in getting as close as possible so that you don’t completely alienate your target audience or cause such a stir that people think you’re overpricing on purpose.

Equally, it’s important to not undersell yourself and end up with a cash flow problem that threatens the business.

Accept that you might be slightly wide of the mark initially, but keep referring to this list to refine your pricing until you get it just right!