PSU Insight

Setting Your Fees and Prices

What's Your Cost of Production?

Another way of determining the price or fee that you charge for something is to determine the costs of producing it. If you want to make a profit by selling the product, you obviously need to charge more to purchase it than it cost you to produce it.

But before we proceed, notice that I qualified that last statement with “if you want to make a profit….” It’s not always necessary to make a profit on everything you do or produce. There are many reasons to sell something for less than it cost you to produce — and marketing is probably the primary reason. Businesses have long recognized the importance of using “loss leaders” to spur the sales of other, more profitable resources. But even if profit is not your motive, you need to know what your costs are, so that you realize how much your marketing is costing you.

In a "running the numbers" session, I discussed the lady who ran a pastry shop who calculated how much the production of her pastries was costing her. You also considered the speaker who was selling his self-published books, who determined if he could sell his books through bookstores and still make a profit.

Calculating the production costs of a physical product — whether it’s a tasty pastry or a self-help book — is reasonably straightforward. You calculate the costs of the physical components that go into producing the resource, as well as the labor costs of the employees you may hire to help you in the process.

But many speakers don’t seem to realize that the same process can be used to determine the costs of developing their keynotes and training programs. And that’s a shame, because knowing your development costs can really help you in pricing your speeches.