From the course: Finance Essentials for Small Business

Pricing a consulting job

From the course: Finance Essentials for Small Business

Pricing a consulting job

- One of the problems that small business owners have is that they improperly price their products and services. Sometimes they set their prices too high, driving away business. But more often, they set their prices too low and end up not covering all of their costs. - I've got some personal experience with this. A story with a good ending. - Okay. I know that you operate your own small business providing executive training courses. - Correct. A few years ago I was invited to provide a one-day training course to a group in Kuala Lumpur. The group asked me to quote them a price for this one-day course. - Kuala Lumpur? Where's that? - Kuala Lumpur, locally known as KL, is the capital of Malaysia. - All right. So what was the pricing issue? - Well see, they just wanted the one day. So my first thought was, "Well, how much would I accept for one day of work? "Would I do it for a thousand dollars?" - Thousand bucks for one day of work? Most people would be happy to make a thousand dollars a day. - That's what I thought. Then I realized that it would take me about five working days to design the course. One day of delivery, but five days of course design. So I wasn't willing to work for six days for just a thousand dollars. - Well then, just increase the price. How about $5,000? - Yeah, but then I thought about the travel time. I live near Salt Lake City in Utah. I checked the flight schedules and I would have to fly from Salt Lake to San Francisco. From San Francisco to Hong Kong, that's a 13-hour flight. from Hong Kong to Singapore, that's another four-hour flight. Then sleep overnight in the Singapore airport to catch the six a.m. flight the next morning to Kuala Lumpur. It would take me almost two full days to get there and about the same to get back. - [Man On Left] So altogether, this one-day course would consume about 10 days of your life. Counting the one day of delivery, the five days of preparation, and the three or four days of travel. Plus, a few days of serious jet lag once you returned. - Exactly. I got tired just thinking about the whole thing. - So what'd you do? What price did you finally quote? - Well, after thinking about all the costs, in terms of time and effort, I proposed a price of $15,000. - 15,000 for one day! But really, after you thought through everything carefully, it was more like 12 days of work and recovery. So did the company accept your price? - Well that's the good ending. I asked for 15,000 and they said yes! I designed the course, flew across the Pacific, slept overnight in the Singapore airport, delivered the course, turned right around and flew back, and then enjoyed a few days of glorious jet lag at home. - The point is that he couldn't quote a proper price until he had carefully considered all of his costs. A common mistake of small business owners is that they don't consider all of their costs when setting their prices.

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