Pricing – Be Practical

Pricing is an often-misunderstood area for many small business owners, the notion to price products and services without taking into consideration the different cost associated with getting these products and services to customers.

How do you go about setting your prices? Do you price to market to penetrate an area you are trying to get into? Do you price below market even? Do you conduct a price analysis? Is your product or service unique enough to demand your price and consumers are willing to pay that price? Did you conduct a market research? What is your approach to pricing?

Many of the questions asked here is to arouse your interest in taking a practical approach to pricing, what do I mean by practical approach? Well, being real! If you are at the stage of pricing your products or services, it means you have already done your homework on your customers (there is a need) and your competitors (the market is not highly saturated). It also means you have your marketing plan, and you are now at the stage where you are pricing your products and services to build your budget as you prepare to enter or create the market.

There are different approaches to pricing and your pricing approach will be influenced by several different factors, your customers, your competition and most importantly your cost. Why taking a closer look at these different factors matter?

Looking at the cost to create or provide products and services to your customers makes the difference between you running your business or your business running you. For example, you purchased an item for $50, shipping was $8, import duty was $2, the total cost of this item is $60. What other cost must you take into consideration when pricing this product? This depends on different factors and can be different for each business. The most important thing to consider is to ensure when pricing your products and services, you are pricing to cover the cost of production. Any cost associated with bringing a product or service to your customer should be considered.

The competition – what does this have to do with your approach to pricing your products and services? Well, unless you are introducing a new product and your market research indicated it is something consumers will be willing to pay no matter the price – then the competition matters! Knowing who they are and what they are charging, how many are there, how long have they been in business, what market share they have? You are an outsider trying to get in, the competition might not be happy, so knowing who they are and how you can differentiate yourself from them, plays a significant role in pricing your products and services.

Your customers – assuming you already did your homework on customers and demand for your products and services. Will customers be willing to pay the price you ask for? Will they be willing to leave the competition and come over to you? What is unique about your products and services that will encourage customers to buy from you? Never underestimate the power of your customers – one wrong move and it can all fall apart.

Now you know some factors to take into consideration when approaching pricing, what will you do differently? What information will you use to make pricing decisions?

MOMENT OF TRUTH: Conduct a market research, there are many free ways to do this. Doing this simple yet effective step, will make a big difference in getting it right or falling flat on your face. Good luck!