Is Your Business’s Pricing Appropriate?
|Gina Blitstein combines her insight as a fellow small business owner with her strong communication skills, exploring topics that enhance your business efforts. That first-hand knowledge, matched with an insatiable curiosity to know more about just about anything, makes her a well-rounded writer with a sincere desire to engage and inform.|
Is Your Business’s Pricing Appropriate?
How much does your business charge for what it provides? Ideally, your pricing falls into the sweet spot that enables you to turn a tidy profit while not being overpriced for your market. It’s important that your pricing is appropriate to ensure you earn what you deserve while providing value to your customers.
Pricing your business’ offerings isn’t a simple issue. Many factors should go into determining how much to ultimately charge for the goods and/or services you provide.
Setting a price for physical products is different than pricing services. Both methods will be discussed here.
Pricing products is fairly straightforward. You’ll take into consideration your production, advertising, packaging, shipping...expenses to determine how much it costs you to produce that item. Depending upon your desired market, you’ll tack on an appropriate amount (perhaps based on your predetermined profit margin) to arrive at the selling price. In most cases, the goal of proper pricing is to maximize your profits. To that end, you’ll want to take measures to minimize those costs so that more of the price of the item will go into your pocket than toward covering expenses.
In other cases, there’s a strategic element to pricing that may benefit you. While these pricing methods don’t necessarily lead to immediate - or large - profits, they may have other desirable effects. Some of these strategies include:
Charging a lower price to gain customers’ attention - If your product isn’t necessarily unique, you can set it apart from the competition by charging just a smidgen less than they do. At a similar price point, your product won’t appear cheap, but those few dollars may tip sales in your favor, making your brand a more popular seller. In a sense, you’re utilizing your price point to do some marketing off the backs of your competitors. Once you’ve gained some brand recognition and customer loyalty, you can leverage that to justify raising your prices.
Start high, drop price later - This strategy may work well if you have a product that is appealing to people who want the newest thing on the market. You can leverage their enthusiasm to charge a premium price for a period of time. Once your first-in-line consumers are satisfied, you can lower the price to appeal to slower-to-adopt customers.
Bundle products and charge one price - This pricing strategy can help you move your product by appealing to customers’ sense of value. Offer items bundled together for a single price that’s lower than their combined individual prices. Although you’re not receiving full price for each item, you’ll be getting your products into the hands of customers, liquidating excess inventory and receiving some revenue, rather than the nothing you receive while it’s sitting on the shelf.
Pricing services can prove a bit more complicated than for products. Vague, sometimes intangible factors often must be accounted for when determining an equitable price for a service. Take these factors into consideration when pricing your business’ services:
Expenses related to providing the service - Remember that a service includes all the elements necessary to make it possible for you to provide it. These include anything needed for the performance of that service that have a cost associated with them like materials, supplies, labor, rent, equipment, utilities, insurance, marketing - in short, your overhead.
Competitors’ pricing - It’s important to know about the market in which you’re competing. Awareness of what your competitors charge for similar services will ensure that your pricing is competitive and realistic for your potential customers. An understanding of their pricing structure will also allow you to showcase any special or unique services you offer that they don’t - and charge for it.
Determine your worth - Market research is your friend. Learn all you can about your potential customers so you know who you’re talking (marketing) to. It’s said that if you’re talking to everyone, you’re talking to no one. Discover their annual income, occupations, family status. What do they value; what do they need and want? Knowing these characteristics will help you determine how much your target customers would be willing to pay for your service(s).
Time - How much actual time will you spend providing your service? How much time will your service save your customer? It’s important to consider both when determining your pricing because, when providing a service, time is your product. As they say, time is money.
Deciding between hourly and per-project - This should be determined by the nature of, and effort required, to perform your actual services. Do the services you provide take a variable or difficult-to-determine amount of time? It may be most prudent to charge for those on an hourly basis so you won’t be putting in hours for which you’re not adequately compensated. More straightforward services that have a more limited variation in work time can be equitably charged for per project.
Whether you’re pricing products or services, remember one important psychological factor: The first number of a price makes a greater impact on consumers than subsequent ones. So, charging $295 instead of $300 for a product or service actually makes the price seem much more attractive, even though they’re nearly identical.
There is no “right” or “ideal” way to set your business’ pricing. Some trial and error may be necessary to find your most appropriate pricing strategy. That being said, these guidelines will help you price your products and services to fuel your profits while helping customers see your pricing as fair and a good value for their money.
How do you charge for your products and services?
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