Entrepreneurs! What Is Your Time Worth?

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If you just launched a business and you are still dubitative about your pricing strategy, you may be interested in the valuable lesson that I learned today: The value of a good or service is not always dictated by supply and demand, but instead can be whatever number you assign. I was already aware that this generally applied to luxury products or intangible assets such as goodwill. But I was not conscious of how much this logic was actually applicable to most things in life.

I asked two business owners how much they charge, and their answer came as a total surprise to me. The first one, a psychologist charges $150 per hour, in a neighbourhood where the average hourly rate is 90$. When I asked her what justified such a discrepancy, she barely mentioned experience or education. Instead, she said ‘because that’s what I believe my time is worth.’ She said it with such confidence that it inspired trust. Surprisingly or not, she is one of the most sought out psychologists in the area.

The other entrepreneur whom I talked to, was a tattoo artist. Most studios have to deal with a lot of competition, and on average the price of a tattoo can range from $90 to $250 in the area, depending on its size and complexity. But this particular artist owned her own shop, and chose to charge by the hour (which makes sense, since the bigger or the more complex the tattoo, the longer it will take). Still, her rate of $140/hour suggests that her customers probably pay twice or thrice the price charged by most studios in the neighbourhood. Interestingly she justified this price gap by a similar quote: ‘That is what I decided my time was worth’. She did not even mention the obvious expenses she had to cover on her own or any other practical reason. This particular artist is booked all year long, and she may not be the most popular tattoo artist in town, but she has a little ‘je ne sais quoi’, and a level of confidence about her skills that makes people eventually pay.

So here is what you should takeaway from all this: Before you start selling your product or service, make sure you have done your pricing properly. It makes total sense to charge an amount less than or equal to the market rate (peer average) in your early years of business. But if you are a small actor in a big industry, chances are you will struggle to close sales, because of competition, higher costs or lower economies of scale. Instead, think about providing to your customers an experience that sets you apart so much, that it justifies a more expensive rate. As counterintuitive as it may sound, substantially higher prices can actually increase your sales. However this is more likely to happen if at least four conditions are met:

1) you know your target market very well;

2) you provide an excellent service;

3) you are remarkably different than your competitors, and

4) you are confident about your skills.

I hope this advice has inspired you, and I wish you good luck in your entrepreneurial journey!

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