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The Price is Right; It Has To Be

Jim Correll, director Fab Lab ICC at Independence Community College, Independence Kansas 

An entrepreneurial mindset benefits everyone in all walks of life. Employees are better at adding value to their company if they think like entrepreneurs. For employees, especially those paid an hourly wage, starting a part- or full-time business; there is a specific aspect of the entrepreneurial mindset essential to their success. It’s one of the most difficult concepts to grasp-how to get the price of their products and or services “right.” 

There are two areas where new entrepreneurs fall short in the art of pricing their products and services. The first is an error in strategy, the second, a shortcoming in the self-perceived value of their worth in the marketplace. 

Many times, the budding entrepreneur will want to offer the best selection, best service and best experience at prices below those of the dreaded “box store.” The idea of offering great service is the best strategy for most products and services. The problem is that offering best selection, service and experience costs more to offer. The reasons the “box stores” generally have lousy service and experience is that their low prices won’t support great service and experience. So, box store shoppers have to accept the take-it-or-leave-it strategy. For a certain segment of the market, the low price/lousy service strategy is good enough. There’s a smaller but growing segment of people, tired of lousy service, who are willing to pay more if the combination of selection, service and experience are superb. Those are the people most of the new entrepreneurs should be targeting. 

The second problem is that of self-worth. As employees, we become conditioned to the idea that we are being paid what we are worth and that the amount would apply whether we’re working for another company or we’re working for ourselves. If we’re making, say, $20 per hour at a job and, in a side business, it takes us one-hour to create an original art poster for a customer we think charging $20 is good enough. The problem is that when you’re on a job at $20 per hour, you are paid for each hour you work. In a business, you won’t be able to produce income for each hour that you work. You’ll have to spend time marketing, invoicing, cleaning up and doing all kinds of other activities. To further complicate the problem, some people have told me that to do something they love, they are willing to take less than their hourly wage. In 2005, a woman told me she’d be happy if she could make $5 - $6 per hour after all the bills were paid. One of two things will happen to these new entrepreneurs if their mindset doesn’t change. They will either go out of business, not able to pay their bills, or they will burn out after a few years, asking themselves “why am I doing all of this for no more money than that.” 

A CPA in Garden City gave me some advice, a rule of thumb, in the early 1980’s that remains valid today. He said that when a CPA firm hires an accountant, they figure on charging their clients three times what they are paying the accountant; one third to pay the salary, one third to pay benefits and overhead, and one third for the benefit of the firm. 

Using this rule of thumb, the price for the original artwork poster above (that took one hour to make) would be around $80; $20 for materials used and $60 for the time. The goal would be to use this price structure in the part-time business while keeping the “day job.” At a point when there is enough business you could be spending two-thirds of your time producing sales, it might be time to take the leap, quit your job and become a full-time entrepreneur and business owner.  

Jim Correll is the director of Fab Lab ICC at the Center for Innovation and Entrepreneurship on the campus of Independence Community College. He can be reached at (620) 252-5349, by email at jcorrell@indycc.edu or Twitter @jimcorrellks. 


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