How do you arrive at a price for the products and services you sell? While it depends on what industry your business is in, a handful of foundational pricing methods will be useful regardless of your business model. We outline five: time and materials pricing, cost-plus pricing, market pricing, target pricing, and value pricing. Let’s dive into each one.  

Time and Materials Pricing

Time and Materials (or T&M) pricing is a method used by many service-based organizations. As you might have guessed, T&M pricing is based on the time spent performing the service. A few great examples of Time and Materials pricing include the hourly rate an attorney charges, the rate a massage therapist charges for a 50- or 80-minute service, or the minimum fee a plumber charges, plus a different rate for subsequent hours. It’s also a method typically used in construction and product development.

In some cases, time-based pricing may be loosely tied to the salary level of the person performing the service. Still, there must be a substantial markup to cover payroll taxes, health insurance, overhead, training, and any materials or tools that are included. While costs like hourly rates, materials, equipment use, and independent contractors are typically agreed upon by the provider and customer ahead of time, the customer won’t usually receive an estimate in advance.

Cost-Plus Pricing

Cost-Plus pricing (also referred to as Markup pricing) is typically used in the retail industry. Retailers select inventory from a manufacturer or wholesaler and then make those products available to the public for purchase. This method is based on unit cost plus a markup. A typical example is keystone pricing, when an item is marked up to twice the purchase price plus one dollar.

Other industries that use cost-plus include groceries and auto dealers, but the pricing approach would also be relevant to businesses like a bakery, which purchases inventory in the form of ingredients and transforms them into a new product, like a pie.

Market Pricing

 Market pricing is the act of establishing the price for your goods or services based on the rates your competitors are currently offering. It is dependent on fluctuating market conditions and allows the seller to stay competitive with other providers. Commodities are the best example of Market pricing: Crops, oil and gas, and metals are all priced by the market.

Target Pricing

Target pricing is the process of beginning with a price that you feel customers will be willing to pay, and then designing a service or product around it. It’s commonly used in the SaaS, or Software as a Service, industry.

For example, let’s say you develop a concept for a subscription-based application that you believe consumers will pay a competitive rate of $29/month for–note that this price will be based on market research, not a ‘gut feeling.’ You would then build your application (and the resources required to support it) around a budget driven by the target price. If an organization can’t create the application build within the budget, it scraps the project.

When an organization takes the Target pricing approach, it can be more confident of a reasonable profit because the price is already consistent with market demand.

Value Pricing

Value pricing is based on the price a customer is willing to pay and what they value, rather than the direct cost of the product. For example, a customer with more to gain from employing your services is likely willing to pay more than a customer of smaller means with less to gain. This is because, while both customers may receive the same services, their perceived value of your services is different. Thus, they’re willing to pay different prices. For project-based work, Value pricing can be based on the customer’s expected return on investment (ROI) and is used in digital marketing and for some professional services.

Pricing in Action

In business, determining a product or service’s price is part math and part art. It may even be a combination of two or more methods listed above. There are many factors and considerations that will inevitably go into your pricing decisions. New Business Directions can help you determine if your prices are adequate for the profit margins you want, competitive with your industry’s standards, and more. We can also help with if-then scenarios. For example, if you raised your rates by $100 an hour, but demand went down five percent, what would your profit margins look like? Please reach out to us to schedule a paid consultation if you would like us to help you with your pricing process.

By now, you’ve probably seen the new buzzword “Quiet quitting” floating around. Coined in 2022 and popularized through TikTok, the term refers to an employee who remains working but reduces their performance to the bare minimum required to keep their role. 

On the other hand, critics of the term say that “quiet quitting” is simply accomplishing the essential duties and refraining from going above and beyond the job description without adequate compensation, avoiding the glamorization of hustle culture.

Whether a result of a favorable job market for employees or a new shift in priorities to a more sustainable work-life harmony, if you suspect quiet quitting is taking place at your organization, it could be time to take action. Instead of coming down harshly with written warnings or other punitive measures, consider a supportive leadership approach, addressing the root causes of employee dissatisfaction.

Keep reading for a few suggestions to get you started.

On the macro level:

• Implement employee wellness programs designed to reduce stress and improve physical and mental well-being, such as an incentivized movement challenge or free access to a mental health app like Headspace.
• Add some perks, such as a sponsored weekly, in-house yoga class or a program led by an instructor certified in mindfulness-based stress reduction methods.
• Encourage employees to take vacation time to reduce burnout. If an employee doesn’t feel empowered to take time off, there could be underlying issues in your company procedures that need to be addressed.
• Add training programs so that employees can have a chance to develop new skills. 
• Add an education reimbursement program where employees can return to school and earn a degree or certificate related to their job.
• Ensure that employees’ health plans include a substantial mental health component.
• Partner with a child-care and/or senior-care agency to reduce the stress of finding support for families who need it. Providing care support will especially help women re-enter the workforce, as they have been impacted most by the increased care demands brought on by the pandemic.
• Bring back the company holiday party, annual picnic, or movie night so employees can socialize with each other again. If you have a fully or partially remote team, a virtual party during work hours is also a great option, and there are companies that can help you facilitate one that’s fun for all.

On the micro level:

On the individual level, and especially for team members you suspect could be quiet quitting, it’s a good idea to conduct a formal process of setting goals.While this is generally accomplished during annual or seasonal employee performance reviews, it doesn’t have to be. It can be very effective to sit down with an employee and simply ask what they want to get out of this job and what they want their future to look like. Have a conversation with team members. 

Goal-setting encourages well-being and can give an employee something to strive for. In addition, refreshing goals quarterly can help a team member re-engage with their role. It can also help a supervisor identify an employee who might be happy doing another job, creating the opportunity for a reassignment that is advantageous for both parties.

Increasing Employee Engagement

Anything that can help to refresh and rejuvenate your employees will help reduce a culture of contempt in your organization. While many of these approaches come with some associated costs, it’s essential to consider the alternative cost of an underperforming team or even the cost of a new hire. So start your approach with an initiative that will have the most significant impact on the well-being of your team—and unless you’re already doing most of the above, that probably isn’t a pizza party or free SWAG.

A new year is a perfect time for a fresh start for you and your organization for many reasons, whether it’s a familiar milestone you celebrate with friends or the beginning of your organization’s fiscal year. Below, we lay out five ways you can welcome 2023 and make it your most intentional year yet.

1. Decide on a theme for 2023

Setting a theme for the year can help you refocus your efforts to align with your goal or mission throughout the year. Meditate on your progress in 2022, how you’d most like to spend your time in the new year, and any achievements you’d like to accomplish in the next 365 days. We’ve outlined a few suggestions to help get your creative juices flowing:

• Growth and improvements to your organization. Many business leaders want to see growth and improvement in their organizations, but it’s important to remember that there’s power in specificity. How do YOU want your organization to grow and improve? Quantify that statement; otherwise, you’ll be hard-pressed to stay focused on your theme.
• Downsizing, cleansing, or simplifying. Perhaps business has proliferated so much in the past year that you need to sit back, de-clutter, re-design, or even clean your office.
• Could it be time to launch that new service you’ve been dreaming of? 
• Giving back. If everything is humming along nicely, now could be a great time to start giving back to your community through your time, services, or financial resources.

Once you’ve decided on your overall theme, create a plan of realistic tasks and timelines that align with your chosen theme.

2. Attend a retreat

If you need to regroup and rejuvenate from a stressful holiday season (or even stressful year) then a retreat can do just the trick. A retreat is a time to step out of your day-to-day responsibilities in order to set goals for your business and make a plan. Often, a retreat can afford us greater clarity in our direction and concrete steps to implement them.

A retreat can be made on your own or with a group of specific team members. Typically, the events of a retreat include a combination of planning and brainstorming sessions, education, team-building, and social activities.

If a retreat sounds like too much work, then a quick vacation (or even a staycation!) might be in order so that you can enter the new year with a relaxed mind.

3. Learn from 2022

If 2022 was bumpy for your business, now is a great time to perform a detailed review. Consider your wins and losses, review your finances, and determine opportunities to improve your service, product, internal procedures, or work experience. Doing so will help you learn what went wrong and explore why. From there, you can brainstorm ideas on how to learn from any mistakes and avoid making them in 2023. Consider making this process structured in a way that affords you the greatest clarity, such as an after-action review.

4. Select a word for 2023

If setting a theme is too complicated, how about selecting one straightforward word for 2023? Here are some ideas:

• Abundance (think big, go after large contracts and big projects, etc.)
• Creativity (think outside the box, innovate, incorporate design)
• Community (hone relationships, support marginalized groups, give back)
• Gratitude (celebrate small wins, reward your team)
• Service (support the community with your talents, volunteer at a local nonprofit, etc.)
• Fun (encourage play, add spontaneity into your workplace culture)
• Prosperity (create an equitable work environment, align your spending with your morals, fortify your organization for future generations’ benefit)

Once you think of the best word for your year ahead, make it impossible to forget by writing it on post-its, setting it as your phone background, or even incorporating it into your email signature to reinforce your priorities. 

5. Make a profit plan (AKA forecast)

Making a profit plan for the new year will help you hone in on the profit amounts you want to achieve. Understanding how much volume you need to reach and what you can spend will avoid surprises at year-end. It’s good to reevaluate your standing on a monthly and quarterly basis, so you have time to adjust your deliverables, revenue, or expenses to meet your goals. 

Whether you do one or all of the ideas listed above, we hope you have an exceptional 2023 and that it’s your best year ever, whatever that means to you.