How Much Should I Charge? (Probably More Than You Think)
HTML-код
- Опубликовано: 9 июл 2019
- / twocentspbsds
If you started selling a service or product today, how would you know how much to charge? Today we look at some of the underlying psychology that goes into setting the perfect price.
SUBSCRIBE to Two Cents! goo.gl/jQ857H
Two Cents on FB: / twocentspbs
Two Cents on Twitter: @twocentspbs
Email us: twocentspbs@gmail.com
--
Two Cents was created by Katie Graham, Andrew Matthews, Philip Olson CFP® and Julia Lorenz-Olson and is brought to you by PBS Digital Studios. We love dropping some knowledge on all things personal finance and helping you make better money decisions.
Two Cents is hosted by Philip Olson, CFP® and Julia Lorenz-Olson
Directors: Katie Graham & Andrew Matthews
Written by: Andrew Matthews
Executive Producer: Amanda Fox
Produced by: Katie Graham
Edited & Animated by: Andrew Matthews
Images by: Shutterstock
Music by: APM
SOURCES:
Confessions of the Pricing Man by Hermann Simon
www.modernsoapmaking.com/know...
www.nolo.com/.../business-ser....
freelancinghacks.com/how-much...
priceonomics.com/.../4535268....
I feel the praise you guys don’t get enough is just how approachable and accessible the verbiage in these videos are. Sure you can learn this stuff in a textbook, but the academic language can leave people more confused than when they started off. Plus all the real life examples show how these concepts look in practice that just help further understanding.
I can’t sing these videos praises enough and just wanted to put this into words :D
Thank you SO MUCH Paige! We really try hard to keep this material accessible and interesting. It doesn't have to be boring!
I agree. Teachers need to use these videos in class.
@@TwoCentsPBS 3:00 I do and many do for computers. Not enough sadly, and why those people and myself don't want to buy macbooks
My favorite price is two cents!
Love it! Thank you!
Two Cents sounds cheap
@@thetvexplorer wElL nOt FoR a GlAsS oF wAtEr.
Joseph Postma It is too cheap
I too wish I lived in the 1920s
I sold cans of soda, when I was in high school. They removed soda from the vending machines, so there was demand for it. A friend of mine sold soda too, but he would sell them out of his locker. I noticed that the cans he sold were warm. I learned from his mistake and refrigerated my cans, overnight. I started with two brands/flavors and expanded to a third. I don't remember the rate my friend charged, but I set my price at 50 cents. Once every few weeks, I would double my inventory and sell them at 3 for $1. These periodic promotions helped bring in new customers while showing appreciation for my current customers. My teenage years were all about side hustles, to take care of my financial needs, and help lighten the financial burden on my Mom.
Love your series of videos. Wish these were around earlier. I've made many financial mistakes, over the years; Currently digging my way out of a few.
Ha! I used to collect the fruit and juice boxes from my fellow students in 6th grade...I would take the unwanted items and sell it back to them after school when they where hungry again..lol
It just worked..they where not bothered by it :)
IF you were getting out of stock, it means The price was too low. Even a small Price increase can make an instrumental margin increase
good on you but i refuse to play higher prices for food at cafeterias, airport, etc. for school i would buy a 12 pack and store. my locker was in the basement and the cans remained chilled even in the summer.
Awesome!
I share the same feeling Carlos. I wish If could have known two cents series earlier. I started my own business since 2016 and in the struggle first few years phase ;( however I listened to 21 Two Cents Episode and they reinjected hope driven by so much learning.
This was a great video.
My wife flips furniture on FB and every once in a while she’ll have an item that isn’t selling. When this first happened she thought she should lower the price. I told her that she needs to raise it. She raised the price by 40% and sold it in a couple of days.
The reason for this is that when she had the item listed for $200 it looks arbitrary and is only attracting people wanting to spend $200. When she raised the price to $280 it looks more confident (because there are fewer 0s) and now it a $20 discount for those with a $300 budget.
The Story of my Life BRILLIANT
Exactly.
I would never spend that much on furniture lol. I'm glad you and your wife can make that kind of money though. Great story.
Daniel Piechowicz there are also a lot of people that would never spend that little. Neither you or these other people are wrong, it’s different market segments.
Thank you for this story!
Anyone who does freelance needs to ask a simple question. “What would happen if I double my rate?” Think about it, you might say you would only get half the clients, BUT since the rate is double you are essentially coming out even for half the work as before. However this only works if you can provided quality necessary to justify the price to consumers
weid
weird
I don't understand the part after "BUT..."?
@@frse.7197 if you double the rate and assume that you'll end up with half the number of customers, you'll be doing half the work which means the same amount of income for less cost :)
If you got half the clients at double the price you would make more money because you could also reduce costs in producing your items.
You guys are the best financial advisors on RUclips. Unbiased, entertained, and brilliant teachers :)
And you're the best Photoshop tutorialist on RUclips!
Oo bhai! Hai.
Not at all. Whiteboardfinance is superior
Another problem I see in the art communities is forgetting to count all their expenses (including time). So many people will add up just the material costs, forget costs such as petrol or labour (even if you're the only person working for yourself, you should be getting money out of the whole endeavour), then slap on a little extra as "profit". The end result is that they end up working for a couple of $/hr, or maybe even at a loss (if they're forgetting to take in to account costs such as petrol).
This also then has the knock-on effect that people see artwork at silly low prices, and assume that anyone charging a realistic price is charging way too much.
Absolutely, we see this too. It's exciting to focus on revenues, but real profit numbers are more important (if less impressive)
+
Great point! I have a friend at work that just started selling her artwork a few years ago. She has made a name for herself quickly and her stuff is flying out of the local galleries. She has been an artist for 40 years, so just selling her paintings is very exciting for her, but I hope she bumps her prices soon anyway.
@LagiNaLangAko23 That makes a profit for me, not her. I actually just bought a painting from her. Paying for it was like pulling teeth. First she tried to just give it to me. I said I wouldn't pay less than $500. After a lot of negotiation we finally settled on $250. Two days ago she told me her work has been selling like crazy. I told her it was time to raise prices and she said "yeah, you're probably right". Lets hope!
@LagiNaLangAko23 Is it fair to the artist, who is Iffy50's friend, to buy her work at rock bottom price with the intention of manipulating the market and making a profit off of her naivety? It might be smart business, but it's also rather predatory, isn't it? I prefer Iffy's approach, to work at educating his artist friend so that she learns to see what the market is offering her and has an opportunity to take advantage of it for herself. Among other benefits, she is more likely to keep producing if she can support herself while doing so.
When I started freelancing (I'm a web developer) , I took a look at the hourly rate of agencies in my domain and area and charged right in the middle. It was OK for a while, but it attracted clients with lower budget and brang in more problems because, those clients didn't have any idea how complex my work was and how much it was really worth; they wanted to have most complex app at the lowest price possible. When I rose my hourly rate 20% 2 years later, I ended up having more business with better paying clients that were aware of the complexity of my work! Best thing I've done so far!
I remember reading this rule in one article that I think every freelancer would appreciate just as I did (translator here); it said: "there are two main types of clients you'll get working as a freelancer:
Clients who:
1. Do NOT understand how complex your work is or how it's actually done.
2. Do NOT or will not need your services on a regular basis.
3. Have not needed your services before, possibly ever.
This group have a hard time appreciating what you do.
and clients who:
1. Understand quite a bit how complex your work is.
2. Need your services on a regular or semi-regular basis.
and the bigger ratio you have of these two groups; more of the latter, fewer of the former, the easier your life gets.
My dad gave me a watch box to sell. I posted a listing on Facebook, and someone offered for $200 cash. I looked around on eBay and found that the box could sell as high as $400 or even $500. I wanted to sell it fast, but I didn’t want to leave extra money on the table, so I started an auction on eBay, allowing for international sellers to bid as well. Someone in Thailand won the auction, and after shipping and fees I had a net profit of around $325, so I really love eBay auctions.
For a box?
What box is this?
Cool story bro
Like Rolex or similar.
@@TheBoxingNinja Patek Philippe
Yes a lot of things are worth selling in bidding mode on Ebay.
I remember vending at a weekend convention for the first time in my life, wondering about this exact same question. The answer I got from my dad was “set your prices so if you sell 70% of your stock, you’ve broken even.” Thankfully it worked, and I sold more than that, and made a healthy profit from my first venture into entrepreneurship ever.
Of course it helps that at conventions, people enter this weird mental state of being far more open to impulse spending and a lot less price sensitive than they normally would be. I wouldn’t recommend doing this for a food truck
+
i remember every time i visit transit or walking only areas in the usa,like nyc or las vegas strip, the cans of pop are often priced close to the 12 pack. can if pop should never be more than 0.75. if its more i won't buy no matter what. i would make the effort to get to a grocery store and pick up water or get free water from any restaurant.
@@asadb1990 walking on the las vegas strip in the day is like walking through literal hell. you can't put a price on a heatstroke.
@@samaraisnt well i plan ahead and buy my own drinks if i know its gonna be expensive.
You could also see the Example of Tata Nano.
Most Economic Car in Indian Market but media publicized it as Cheapest car, Public only heard Unsafe & Unreliable from there onwards. (BTW the car is pretty solid built with a chassis that does NOT compromise safety at all)
Also when People buy a car they are looking to show off. So they wont buy whats in their budget but rather go for something that impresses their colleagues/friends.
Product Placement & Public Opinion are two key things to consider while setting the prices.
Thanks Two Cents (Y)
Siddharth Pandit i thought the same thing
Don't construct theory out of nowhere.
Then, why is Kwid selling ike hot cake. Why redmi phones are so popular.
Nano aesthetically very ugly.
@@shibu.matrix
Nano - Small Car
Kwid - Looks like an SUV
Hence it's popular.
Mobiles keep breaking, dropping and get outdated very quickly anyway. Hence it doesn't make sense to buy something flashy only to replace in six months or so.
All being said, we can agree to disagree. ✌🏻
@@shibu.matrix Have u even seen the two? Kwid is an SUV wannabe while Nano is basic. And Kwid costs twice or thrice to Nano while breaking down more often than Nano. People just don't want cars that sell for an iPhone's price.
Germans learned it the hard way.
So another way corporations set prices is based on a thing called “price elasticity of demand”... a basic version of it would be
Imagine I own a company called Fruit and sell a special smartphone called the Uphone, using a lot of data I determine that I could sell 1,000 Uphones if the price were say $1,000 (giving me $1,000,000 in revenue).... but if I sold them at $1,050 that I would sell 975 Uphones (giving me $1,023,750 in revenue, and a little bonus of lower expenses since I sold less.... so a higher profit)
A corporation wants to maximize profit, and if they can generate a higher profit from selling fewer items at a higher price, they will.
This is mostly true and crucial to understanding how pricing works. In recent years, companies have shown a willingness to supply more than the optimum profit level. It could be to capture market share, or to get their brand out there. Not fitting our old economics models as well as before.
But you know, supply and demand
That’s how apple makes bank
Also scarcity makes things more desirable.
Just yesterday, my friend and I was talking about this. This video came at a great time! Thanks guys. Almost like you read my mind.
Mission Mind-Read: Success!
your phone was listening to you lol
I’ve learned from Uber and started “surge pricing” for my bbq service during the month of May and June (graduation and wedding season) and up my rates by 33% and I still keep plenty busy. It gets me higher quality clients and I do about the same amount of work and make more.
I had to haggle my contract price for a graphic design and writing job. That's of course after the same client paying me the same rate for three previous contracts. You have to let them know you want that bump up, otherwise, you're always going to be that cheap person they always get. Not so good for your progressively aching and aging joints.
I own a small marketing agency and the low price = low quality price mentality is definitely true. When we raised our prices, we actually got more inquiries and a few new clients.
Crazy how that works, right?!
Not just the video - even the COMMENTS are gold! Great stuff..
Freshman and Sophomore year of college I had to take Econ 101 &102 so I can verify that everything they say is true. As much as everyone complains about high prices the truth is that people associate low cost with low quality.
I mean no offence, but they're probably much more qualified than what you get after doing only two econ college courses, lol.
Yea... just earlier today I pointed out to a friend that a low cost could be suspicious. I realize I'm part of the problem but it's true most of the time so I guess it's beneficial?
Teachers need to use these videos in class.
I really dislike the use of luxury goods as a mean to exemplify how higher prices can generate demand. It ignores the fact that luxury goods don't come alone - there is the whole shop experience, the packaging, the branding, prestige etc. I promise you that any bloke who rises prices to appeal to the luxurious market without working on the luxury that goes around it while not succeed.
Great description of utility though - too many people ignore the non-physical aspect of it.
Great point Barris. The price doesn't "Drive Demand" for luxury products. Instead, it's more of an indicator that the luxury "experience" has been created, as you say!
When calculating price or profit margins using your costs as a basis, too many people forget customer acquisition cost when they plan out their business pricing strategy.
DEFINITELY! Very good point, it's something that's overlooked all the time, Biren. -- P
I see this all the time with businesses I work with. *ALMOST ALWAYS* the price is too low.
If you think no one is buying because price is too high often it’s just that there isn’t enough money in marketing
Remember to under-promise and over-deliver 🤔
Under-promising loses you the deal, over-delivering is wasteful, just deliver what you promise and promise what you deliver
I've been watching your videos for the past few days and all of them are brimming with brilliance and insight! Thank you for such knowledge that I've been searching for! Our small family business sells pool tables and it's been really difficult working out a ideal price because we want to provide great quality and still make it economic for everyone. But because of Covid acquiring materials and supplies have become a great challenge. Attaining USD for buying goods anywhere beyond Trinidad and Tobago have become a most difficult task and we definitely need to reconsider the cost for our products and services. Thanks to your videos I have been becoming enlightened and educated financially and I see it necessary to make the adjustments to our business as well. I hope things work out for me and I can repay your vast knowledge supporting you and your channel! Stay wonderful and Keep on being amazing and blessed!
*Unless*
its a _certain_ Monitor Stand that costs $999
Duchi
Are from marvel studios??
@@yosifbaiee6902
They have better monitors at Marvel than what's Apple offering
Confessions of a Pricing Man IS the gold standard book on pricing that every entrepreneur should read day one.
Amazing analysis, research, and details you've added in this video. Thank you and Congratulations!
Thank you so much Victor!
"placebos were more effective if patients receiving them believed they cost more" let that sink in for a moment
Garrett Henderson-Tjarks That’s the business model that the healthcare and pharmaceutical industry in operates under. It is very sad because there are services that should not be as privatized.
Makes total sense. It is logical to assume a higher price means higher quality. There is nothing odd about that. If anything, that's correct conceptual thinking because in reality, the most expensive things are better in a super majority of cases. That's the correct pattern.
@@SiMeGamer That is when it gets tricky when they try to pass lower quality stuff as higher and people falling for it.
@@vaderladyl that's why there are services that check out the products and look at the results. Sometimes with labs and their own scientists and not just statisticians. If people buy blindly then they are just bad consumers and they lose from and it's their problem. If someone sells a glass of basic lemonade juice for 100,000$ and someone buys it because they are robots and put cost to value blindly without context, then I'd say that their money is better in other people's hands. As long as you don't lie to the consumer, any cost is viable and should be. The government shouldn't interfere here. You should be able to set whatever price you want for whatever thing you want (unless it is a matter of the most basic life necessity in a particular context - like water in a desert). If someone has a cure and sells it for millions of dollars per customer, it's their right to do so. It shouldn't be intervened by any regulation. The patent will be open in a few years and other medicine makers/clinics will compete and lower the price to it's best value. Basic Austrian economics at play.
@@SiMeGamer That is true yet many people just don't take the advantage of having this at our disposal to use as a tool for better negotiation and acquisition of goods for fair prices.
I started making hair accessories part time over the summer. I was stuck on what I should charge since customers started appearing before I decided to make a side hustle out of it. Originally I was just making a couple for my friend's maternity shoot. So I asked around and did research on what other similar products were sold for. Eventually I landed on a price similar to Amazons hair accessories.
As someone who majored in economics, I can tell you the information in this video is on point. Thanks!
I second that.
MechE grad. But did some business economics courses.
Thanks so much Francois!
Thank you so much for making this video! I am a new chefpreneur and I have done almost all those things you mentioned when it comes to determining a price. I sell West African Cuisine which has costly ingredients and very time consuming. I have a hard time still determining how much money per hour I am working to add into how much to charge. This helped me to confirm that I am actually doing it right even thought ppl may think my prices are a little high but my quality is great! I hope my demand increases over time. Thank you guys! 💛
Best of luck to Michaella! West African Cuisine... that sounds amazing! If you keep a close eye on your costs and profitability, you'll be way ahead of the curve compared to most food-entrepreneurs! - P
@@TwoCentsPBS thank you!! 😁
Great video!!! Just what I needed to see.
Want a part 2 of this with more details if possible
Clicked on this video thinking it was about how much I should charge my phone's battery. Ended up subscribing after seeing this quality content
you guys are awesome, I like the way you speak, and the topic is magnificent, worthy to watch, everytime I found valuable to watch Two Cents videos.
Love from India Two cents
This channel is like my favorite channel on youtube. Wish you guys made this sooner cuz it is so educational and so fun to watch. And everything about it is perfect from the voice to explanation to animation, music, I mean....one day this channel will get so big.
Thank you so much for this! I was actually just about to start charging for freelance user research and had no idea where to start with price.
My husband and I operate a seasonal produce business. Since our produce is of high quality, we market it with that in mind. We check out local stores with quality produce and base a lot of our prices on that research.
First off, great video as always. I had a small personal business where I resell some medical insurance cards (it used to be a thing in Saudi Arabia). Anyways, at the time, my profit margin ranged from 50 SAR on a 350 SAR transaction to 1,000 Sar on a 4,000 riyals transaction. It varied a lot. How much I would have to travel. How many cards, if the person on the other side might be a pain in the butt, was he rude, was he pretending to be poor and trying to hussle me. Usually my prices and services were above average in the industry and that is why for over a year I made enough money that 2 month of income from this part time business was enough to cover my expenses for the entire year!
But I always always always made sure I charged at least 50% more fees to people who I knew were being slick or trying to con me. It was just my own thing. Others in the industry just always charged high because they had other ways of getting clients etc.
Another great informative video! Thanks!
I've been thinking hard about pricing my products and this video cannot have come at a better time haha
Wow... in just 8 minutes you've explained (the most important parts, like pricing on profits) what I've read in many textbooks.
Simply amazing.
Great episode, when I started a website design freelancing I use to ask the client how much is the budget you place for this project and from there we start negotiate on the final price and deadline..
I have operated a hot dog cart for a few years. It's not my main breadwinner but it used to be. I totally understand the statement about consumers believing profit margins are high, especially in the mobile food world. I offer affordable food options and there were times where to get into events and sell these options, the person running the event tagged a $300 fee for food vendors. Needless to say, I didn't do those events since my margins are already low.
I scoped out several other vendors before pricing out my food and it helped out a lot. The hard thing for me has always been landing on a price for catered events, but I learned the best way to do that is to determine the cost of goods then determine how much of my time I'm giving to the event, and determine the price based off the cost of my time plus the cost of goods.
WOW...... You guy's are the BEST explaining what it's like to become a entrepreneur in the REAL world. My father was one.... and briefy explained to me everything you just posted ( word FOR word ) about 30 year's ago when I was in JR. HIGH SCHOOL.
It's a RISK to face..... because there are POSITIVES and NEGATIVES when you work for yourself. I work for a employer, I am just HAPPY without the STRESS..... and LIVE a happy life using my creativity mind to work outside the place of employment when necessary.
Awesome feedback and awesome dad! Both Julia & I (as well as our co-creators Andrew & Katie) have lots of experience as entrepreneurs and approach this having learned many of the lessons the hard way! -- P
I used to think that way until I realized that many (if not most) employers are only interested in the lowest cost guy that can do the job. And all too many achieve this by hiring people on a "contract" basis (so they don't have to pay benefits), then stringing the guy on for years. That's why I'm taking my most recent shot at being an entrepreneur. Working really hard with fingers crossed.
I'm a freelance project manager and over in the UK, where I used to live, we just never talk about money.
Just in the last year I did talk to a really good friend about this (who also knows the quality of my work) and found that she gets paid 33% more than me and assumed I would get even more than she does.
Mobile detailer here.
When I started I offered $10 washes just to gain a client base.
Then I started calling other detailers and asking their prices. I also asked other detailers in person at the supply stores. We kind of keep each other on check now.
There are guys on YT videos who clean up people's yards for free (generally they have elderly owners who cannot afford to pay). These vendors get millions of views and referrals for yard work and they make MORE money in the long run. They are smart enough to realize that a seller doesn't have to make a buck every single minute that he is working. Maybe it's true that you can't buy friends, but you can sure buy goodwill.
The best example of poaching customers from yourself is Hoover vacuums in the UK, which once had a months-long promotion where you'd get FIRST-CLASS transatlantic airline tickets if you bought a vacuum. They sold so many vacuums (at LESS profit than normal) that once they ended the promo, they almost went bankrupt from everyone in the UK already being flooded with new vacuums.
I just started mowing people's lawns and have no idea how much to charge. I just watched videos and looked at quotes from others.
I also have two mobiles homes that I'm deconstructing for no charge. I'm going to scrap as much as I can and maybe even sell things like the carpet and 2x4s if they're still in good condition. I said free because I just wanted to get some customers ASAP to get started. I'll see how it goes and if I do well I will start charging, maybe $1000 for the average sized mobile home.
I was home from college during the pandemic but now that it's starting to get under control I plan on going back in the fall. I got a few months left so I want to save some money but I didn't want to work for an employer in a short time and I just hate working for someone in general, so I just started hustling on the side. Once I go back to college the financial aid will cover everything.
This was the first video where I actually learned something new and very useful. Glad I've been a subscriber for the affirmation and now for the education!
Haha, awesome! Every now and then we'll throw a curveball in there. Glad you learned something! -- P
Thank you so much!! I've been really concerned with about this topic for a long time.
I'm starting to run into this issue now that I'm taking tailoring on the side of my regular stitching gig. I'm charging relatively low ($15 an hour) because I'm only 3 years into my professional career, and people think that's still too much to charge. Or they ask for private sewing lessons and $30 an hour seems high to them (it's definitely low compared to some of the private lessons I've gotten). How do I convince customers that my skill is valuable when fast fashion has systemically devalued it?
Maybe you could teach multiple peolpe at the same time. Have a stitching and art class and have 5 to 10 people join. Each person pays 15 Dollars for two hours of crafting and learning. 15 dollars for 2 hours is really cheap. But if you have 10 people joining in, you wold make up to 150 Dollars for two hours.
Now that's just generally speaking. Also, I dont know much about art. so its just a buisness idea. Good luck :)
@@jasmina.8473 I'm open to that, but this example specifically refers to when someone asked me to privately teach their 2 kids.
Maybe you should actually charge more? Then you would attract customers that are willing to pay more and will value what you do more. They would assume your quality of work is better simply because of the higher price point. Plus, the people who want to tailor their clothes value their clothes- they probably spent a lot of money on it. These aren't people buying fast fashion. They can afford a more expensive tailor for their expensive or sentimentally valued dress or suit.
how about making a course on one of the platforms out there like skillshare.com or even make your own website and offer both teaching and actual products on it?
I love how simply you present these concepts! This is such a valuable video for freelancers to watch!
I've had a small lice removal business for 8 years and pricing has always been tricky. I went from hourly to flat-rate back to hourly and now to a flat-rate that varies, depending on hair length. I have wondered if my new flat-rate prices seem too low to some people and too high to others, but I think I'll start by taking out the $ signs. I'm not sure spelling out "one hundred twenty" dollars would put peoples minds at ease. ;)
You guys are professionals seriously I’m here thinking about how to lead my book shop business. thank you this was very helpful.
Awesome, thank you so much! -- P
Love you guys, your advices and mutual chemistry is pure magic
Wow, that video was really accessible and great! Well worth watching twice!
Buying and selling are two things you come across a lot in your day to day life! This video is helpful to realize some tricks big businesses use and how you can use them!
Damn I feel like Google is listening to my calls. I was just talking about this subject with my friend over the phone.
Woah! Weird...but cool too!!! ; ) Glad we're covering something that's top of mind for you.
Don't forget the decoy effect when pricing bundles! That's really effective as well
5:52 nice! by this logic, he can actually try raising the price a bit, lose some sales, but have a much larger profit margin. good thinking!
Not that simple tho
Great video again from the best RUclips video host duo!
Awwww, thanks!
Gosh, this is so incredibly helpful! Your videos are so informative and wonderful you would think this information was being kept secret from the general public! So many dots connect in my mind as I watch. Thank you so much!
Aww, that's so great. I truly hope with every video a few "dots connect" for our viewers, and I love to know you made some connections with this one. Thank you so much for watching! -- P
I do it by calculating each raw items. For example a case of pepper is around 20 to 25lbs, I will roughly estimate how many pieces in a case and divide it to the actual cost of the product .From there I will have my initial estimate of how much price I can put on the item.
Well done! - a great introduction to the topic and lead into the process of pricing.
i do e-commerce and i sell at a higher price than most competitors that means even when i have smaller orders i ear the same as most competitors and i can do more customer service like refunds and replacements because i can afford it because of the higher margins, when friends asks how they should price their products i always tell choose the higher price its easier to lower price than to make them higher in the future
This is a great video going over fairly interesting bits of economic theory! For people wanting to read look up "price signal" and "veblen goods" on the LV bag example at the beginning.
This has always been so intuitive to me yet many startups I have worked with continue to believe they need to compete at the lowest price points even when their product or service is clearly superior. Or even be of the mindset they can offer the BEST service for the LOWEST price. Maybe this is why so many new businesses fail.
Thank you this is really helpful❤
The supply and demand curves still apply. Some demand curves are very linear while others are steep curves. Some are elastic while others are inelastic. There are also separate curves for each product. There is not a curve that covers wine. There is a curve that covers one particular wine and only in one particular geographical and demographical area. Price can be a determining factor of what your product is. You can have 2 purses come off the same line and one gets a generic label and is priced at $20 in Walmart while the other gets a designer tag and priced at $200 in Macey's. You see this all the time in the automotive industry with Toyota and Lexus of Chevy and GMC. There are stories of GM dealers getting trucks in half badged Silverado and half Sierra.
As a business owner you need to be aware of the supply and demand curves. Not necessarily exactly where they meet, partly because they never will actually meet thanks to dead weight loss from government, but primarily because they are in constant flux. However you do need to be aware of the general shape of at least the demand curve. re you in something like gas or insulin where the demand is very inelastic and people will buy no matter the price but people buy almost exclusively one price and location? Or are you in the bass boat business where demand is quite elastic where people are more likely to pass if its to expensive? Pricing is more complicated than jut matching supply and demand and if you are in it you really can't control it anyway. They are more for studying markets as a whole and in time they do tend to balance out. Starting that business is actually part of them balancing out. Some one say high prices or an underserved market and saw an opportunity to make a profit by increasing supply and bringing those curves closer together. Once your are in business there are a whole nother set of factors and forces that you must contend with.
Starting and owning a successful business is hard. Don't be afraid to hire a business consultant. You cant be an expert at running your food trucks and the business environment. There's a reason chefs start a restaurant and before long almost never cook in them.
I love this channel! I learning a lot through it this summer :)
I sell stuff I don't need on ebay and usually I just look at what everyone else is selling the same thing for, and then add shipping. Etsy however, has a huge variance in prices since it's handmade stuff
Saving this video for when I’m ready to start my business.
I have a commission based business for small/medium hand crafts. I have a list of averaged material costs and an hourly rate that I quote separately. If people want to save money that often choose less expensive materials, or even do their own price hunting and ship the material to me. I take a 15% down payment with a minimum of materials cost.
Thank you for simplifying complex subjects 💙
I was wondering what to charge for handyman labor and this helped a LOT; thanks!
First business I started I would do the cold calls as potential buyers to get an idea, and then went mid range. this worked for sure, but I thought there would be a better way. Turns out just hiring a really good salesman was all it took, with that hire the price stopped mattering as much as he was able to just talk customers through and get them to buy at almost any rate, cheap or expensive
This episode was great, I tried to come up with prices for my commissions and this more or less how I tried to make it.
OMG, Two Cents releases a video on pricing right before I release my new game on Itch
Cool! What game is it?
Congrats!! Hope your launch goes well!!
Thank you for affirming that there's a lot more to pricing than "the going rate". We have to set a price that's worth our time AND effort AND earns a profit that brings us joy. It took me nearly two years to learn that, when I started my business (4 years ago).
This is OK.... IF the product you are selling is worth the amount you are asking. It really is that simple. We make decisions like that at the supermarket without really thinking about it. Let's say I'm looking at a bag of tortilla chips and I think it is worth $4. The price tag says $5 and supermarket prices are not negotiable, so I pass on the item. I don't care about advertising costs or material costs. The item is worth $4 (to me) and so I will not pay more than that. Other customers may think the item is worth $5 (or not), and they also don't care about the manufacturer's costs or what I think about it. These customers will still buy such an item. Yet other customers may think the item is only worth $3 rather than $4. Etc., etc.
There's truth in the balance of experience, knowledge, and product quality on both (service provider and consumer) ends in the realm of how much to charge.
Depending on the level of each, you can answer the question better.
Then, you'd have to look at the human psyche and set a marketable price to start and adjust from there based on supply and demand.
Cheaper isn't always better. Just because it would leave too much for imagination as to why so cheap. And, the same can be said for too expensive.
Market analysis plays a big part also to any company's success!
This video is fantastic! There is so much great information here, thank you!
So glad you're getting value!!!!
You two are awesome! Even when the topic doesn’t apply to me, it’s still very informative and entertaining. Keep up the great work!
Lol I thought this is a video about how fast you should at max charge your phone, no matter how much charging speed it supports, to not damage it in the long run. The thumbnail also looked like a plug and a cable going to something lol
The problem with the median price concept is that it assumes that all equivalent service providers have to deal with more or less the same costs in order to drive profit. Unfortunately in this global economy that isn't always true. I offer my services online for a price that's slightly below the median, and I often lose clients to providers located in the Caribbean who can work for as cheap as $7/hour and still make profit. In my country there's a national guild association that sets the minimum wages for professionals like me as a way to guarantee fair competition but I feel it's time we started considering some kind of world wide guilds to deal with this kind of competence issues. Certainly no one in the Dominican Republic would complain if they were able to make $45 an hour and those of us working in Europe and other higher income countries wouldn't be forced to work extra hours at a lower rate just to be able to compete.
I used to buy 100 pack boxes of blow pops for something like 12 bucks and then sell them in middle school for 25 cent each.
I don't remember exactly how many I would bring every day, but I'd always be sold out by the end of the day. Looking back I see I wasn't earning that much, but it sure felt like I was.
US companies have only a 5% profit margin? Wow, power to the consumers.
Welcome to capitalism.
More like companies don't like showing they make too much profit, the bonuses and high salary will eat up chunks of their "operating costs" the mark up on products is anywhere from 3-8 times what they actually cost to make.
@@gilbertoflores7397 Hmm maybe
I never learned this in school!!! Pretty awesome!
So on a full time basis I do handyman services, and smart home installations. I do the first 2 hours for 99, then 40/hr after that. Most people have given me great feed back. Time for phase two!
Love your practical clear content...subscribed
This is so good. Reminds me a lot of a Robert Cialdini book about persuasion.
What if the sandwhich guy started to charge $9 or $10 for the sandwhich he used to sell at $8?
He will start to lose business and eventually revenue will hit causing him to slashing rates to original price. Unless inflation grows people should not increase the prices.
Or people will think it is higher quality and he will still sell his 100 sandwhiches.
@@chrisbaker2669 It depends upon inflation and prices of your competitors (Who has good name & brand name & Quality). Also its risky but if that guy can pull this off then others will rise to your charging levels.
@@chrisbaker2669 He could give people a sense of higher quality by painting the food truck a "richer" color, changing to a fancier font, removing the dollar sign, using words like "artisan" or "farm fresh" to describe the sandwiches, etc. all while his sandwiches stay the same.
@@sartajsingh1428 You forgot one important factor: how much is the sandwich worth? Say one guy sells a particular sandwich for $8, and it's not bad but people complain that the sandwich is too small. So he makes the sandwich with the same quality of ingredients, but makes it 50% larger. Then he marks it up to $10. Would you buy the $10 sandwich, assuming that you enjoyed the original $8 sandwich? I would and I'm not the only one.
I buy junk cars and sell the used parts as a hobby. For me when it comes to pricing I have two factors that I consider. The first factor is the price of comparable parts on ebay (I usually match the price of the cheapest one if it meets my second factor), the second factor is my time for how long it will take to remove the part without causing damage to it, or other parts around it. When I factor my time I like to pay myself $30/hr and for the more valuable items on each vehicle I like to try to make a profit beyond my hourly rate to pay back the initial cost of the vehicle. There are some parts that are just not worth my time to remove and sell, so in those cases when I have a customer who needs those parts, I usually explain to them that for the time it will take me to get to the part, they will be better off to buy it on ebay, and I will usually send them a link to the best deal I can find. Giving them the alternative option keeps my customers happy, and it saves me from wasting too much of my own time. This method has it's flaws but it serves me well, and leaves me with a decent return on my junk vehicles, as well as a decent hourly wage for my own labor.
My financial literacy class watches you guys and I love the videos!
I am a personal trainer and I checked around what others were charging and just charged a little more or less if I was training multiple ppl at once
No economist thinks that the supply-demand curves are straight. The elasticity of supply and demand determine the curvature of the graph.
There are different graphs depending on the competitiveness of the market, and how unique the product or service is.
A+++ video as always, well done! Appreciated and thanks.
3:29 I *just* did that the other day when buying a bottle of wine, because I know crap-all about wine.
As an additional point... Your example of Sarah who is bidding on a graphic design job as a freelance employee, it's even more important to quote high. No matter how low you start your bidding, your client will almost always try to negotiate you down to a lower rate. So if you started higher than you actually would be willing to take, you have more room to negotiate down, maybe giving yourself some more desirable concessions from the person hiring you while making them feel like they're getting a good deal by talking you down. So just another reason to charge more than you might initially think you should. I could provide others... but this is the most relevant reason.
In my Airbnb rental, I separate fixed costs from variable. Then I obtain the break-even price per night. Since there is strong seasonality, I play with pricing. Understanding the concept of contribution margin is essential.
What I’ve come to know to be true is that often times, someone who scoffs at what they see as an exorbitant price tag was likely never going to be your customer to begin with, even if you tightened your margins because they don’t truly value the goods or service you offer. Not everyone is going to be your customer. Imagine your ideal customer and go to them. Don’t open a high end store in a low income neighborhood.
Great video. Extremely informative.👍