What's the Magic Price? How to set a price for your product or service that'll leave both you and your customers happy

(YoungBiz)- Sarah Zelechoski, 21, got a rude introduction to business whenshe and her brother Luke first opened Saruke, a Web design companyin San Diego, and went on one of their first sales calls. Aftergiving a price quote to a local real estate firm over the phone,Sarah and Luke arranged a meeting to finalize the deal.

When the Zelechoskis got there, however, the agent told themanother company had offered to do the job for much less, so theylowered their price drastically. The job ended up being much moreinvolved than they originally thought, and Saruke made almostnothing on the deal.

The Zelechoski brother-sister team is part of an growing trendof tech-savvy teens who are offering Web design services today atprices far below industry standards. They do, however, still haveto find the "magic price" for their services--one lowenough to attract customers, yet high enough to make an adequateprofit.

Floor andCeiling
Matt Chaifetz, 18, owner of Innovative Travel Concepts (ITC) inManhasset, New York, devised a good way to handle the trickyproblem of price when he learned two words: "floor" and"ceiling." The lowest price you can charge and stillbreak even is the floor. It includes the cost to produce aproduct as well as your time and labor. The highest price acustomer will pay is the ceiling, and that figure changesaccording to the strength of the demand for the product. In thespace between the floor and the ceiling, there are lots of prices,and you have to decide which one is best for your customers.

Chaifetz made a surprising discovery about pricing three yearsafter opening ITC, a service business that allows individual travelagents to sell bookings without high fees. After hiring anindependent consulting firm to conduct a survey of his clients todetermine his best pricing strategy, Chaifetz found out that hecould actually charge more for his services because of histrack record for good customer service.

"I think my best quality as far as business goes is myability to see things happening ahead of time," Chaifetz says,and this is especially true with pricing. He identifies his targetcustomers and tailors his services and pricing to fit their needs.Chaifetz also studies the competition and notes their pricingstrategies, both the ones that work and the ones thatdon't.

And while the Zelechoskis may have walked away from one of theirfirst deals empty-handed, they did learn some valuable lessonsabout the importance of pricing, such as being sure to get all thefacts about a job before you give a quote. Since then, Saruke hasinstituted additional pricing policies such as using apre-determined price list and never giving price quotes over thephone.

So if you've been trying to discover the magic formula forpricing, it's easy to see you're not the only 'trep whostruggles with this issue. Try some of the solutions suggestedhere, and, if all else fails, take a survey and ask yourcustomers--most of the time they'll tell you exactly how widethey're willing to open their wallets.