A graphic designer I spoke with recently is struggling with a perennial home-business-owner challenge: pricing. His prices are lower than the competition, but if he raises them he isn't sure how to justify higher prices to his clients.

One of the biggest challenges home-based business owners face is knowing what to charge for a product or service. A low price may leave customers wondering about quality; high prices may result in lost business. Added to this challenge is the fact that many potential customers will define your product's value by its price.

One pricing pitfall is basing a price solely on costs plus the salary of the business owner. This tactic fails to incorporate the unique value that your business offers to clients and customers. Unique value is often a key selling point for home-based business owners, who usually build their business on their experience in a particular field or discipline. For example, the graphic designer I know has valuable Web-site design experience and newsletter layout expertise that justify a premium.

Fortunately, the prices a business sets are flexible. Many factors may drive your prices up and down, such as discounts for quantity purchases, lower off-season rates or high product demand. If you are setting prices for a product or service or if you'd like to reevaluate your current prices use the guidelines below to get started.

? Set a strategy. Decide how you want to position your business in the marketplace. Sending a "guaranteed lowest prices" message requires a different strategy from a "Cadillac quality" message. Your pricing needs to be in sync with your overall market strategy.

? Find out what competitors are charging. Knowing what others charge will help you find a comfortable place on your industry's fee scale. You can collect this information by calling similar businesses or by checking with trade associations and industry publications to find out if pricing research is available. You may also be able to find information online by visiting competitors' Web sites.

? Talk to potential customers. Approach a dozen or more potential clients and ask them how much they would pay for your offering. You may also want to ask them what features or services would entice them to pay more than the price they quote you.

? Analyze costs. Identify fixed and variable costs and required profit. To price a service, add up the monthly hard costs of running your business items such as rent, phone charges, taxes then add a monthly target salary for yourself. Divide this number by the number of hours you spend running your business each month. This will give you an hourly rate, which you can use to calculate the cost of a client's project.

To price a product, divide the total of your monthly hard costs and target salary by the total number of items you expect to sell in a month. For instance, if you determine your business costs and expected salary add up to $1,000 per month, each month you'll need to sell 100 items for $10 to meet your goal. If this sales volume is not reasonable, you'll need to adjust your prices accordingly.

? Analyze the value you add. While it's important to take stock of the tangible value of your goods and services, it is equally important to look at the qualities that make your offering valuable to your clients. For instance, if the tape dispenser you design makes wrapping packages easier and results in less waste, your product saves your customers time and money. This may allow you to justify a higher price.

? Do it again. After you've worked with the prices you initially set, assess whether they meet your needs and adjust them accordingly. It's a good habit to review your prices frequently. Changes in the market or variations in the costs of your supplies may require you to adjust fees up or down.

Starting a personnel business

I recently received a letter from a reader asking how to start a human resources consultancy for small businesses while maintaining her current job as a human resources manager.

Managing human resources is among the greatest challenges that home-based and small-business owners face. The key is to determine how to package the business' services, define the market and then develop a plan for reaching this market.

Doing some market research will help with the packaging part. By "package" I mean, for example, whether the professional should offer her services by the hour or on a project basis. This research will also determine which segment of the vast small-business arena is the best one to target. Armed with this information, one can develop a plan for marketing to the specific type of business owner one wishes to reach.

To conduct the research that I am suggesting, it's best to network with friends and colleagues to get the names of business owners in the area. If this networking is insufficient, one can attend local events frequented by business owners. If you approach people at these gatherings in a friendly manner and don't take up too much of their time, many will be willing to help. Put them at ease by explaining why you want to ask them questions about their human resource needs. This research is not statistically valid, of course, but it should help in shaping a new venture and gauging the market's interest.

Home job hunting

Looking for opportunities for working at home? There are some good resources for exploring home-based work.

On the Internet, you might want to take a look at Telecommuter's Digest at http://www.tdigest.com/ or Telecommuting Jobs at http://www.tjobs.com/.

Both sites list available work-at-home positions and provide information on how to build successful telecommuting relationships. Telecommuting Jobs also devotes a section of its Web site to other telecommuting links.

Another good idea that is often overlooked is networking for home-based assignments. Perhaps an old supervisor needs some assistance with research, project management, bookkeeping or administrative work. If he or she doesn't have a current need, you may be able to ask for a referral to someone who does.

Alice Bredin is author of the "Virtual Office Survival Handbook" (John Wiley & Sons) and a nationally syndicated columnist.

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