Last Update – December 12, 2014
How do you know when the price is right?
Pricing products and services can be tricky for most entrepreneurs. Setting the right price is is an essential element of your marketing strategy because it directly impacts revenue, while other marketing activities incur costs. If you’re looking to tips and tricks to improve your pricing strategy, twelve entrepreneurs share how to improve your product or service positioning by refining your price.
1. Calculate costs and compare.
“First, calculate your costs to source or build the product or service, and compare it to the prevailing pricing in the market. You want to make sure you’re capable of making a sufficient profit without overpricing… And never let your customer see a discounted price or free offer first!”
2. Consider the value.
“Always price your products and services based on the value you provide. If you can help someone make an additional $10,000 in one hour of consulting, your fee should be in alignment with the additional $10,000 of revenue they earn and not with the one hour of time you are spending.”
3. Always anchor your prices.
“When you add in a premium, higher priced option, not only will you generate more profit from the customers that choose the premium option, but you will make the cost of your regular option seem much lower in comparison. Most people will still choose the lower-priced option, but you’ll likely see more conversions overall when you add in a higher-priced option to contrast it.”
4. Don’t price solely on competitive factors.
“Don’t worry about what competitors are charging. My photography business has priced itself according to our own cost of goods sold and what we want to make. There are too many photography studios willing to go out of business in order to compete on price alone. Quality and value should be the sellers.”
5. Remember, it’s easier to lower prices.
“I always go with the ‘there is always time to lower price, never to raise them’ rule. It always depends on your strategy, but at my company we focus on the selected target, at the price they are buying, and start from there.”
6. Keep close tabs on competitive pricing.
“Keep a close eye on what competitors are doing… Look at what your competitors are charging and decide where you fit in around that. Are you the cost leader or do you sell the quality option that requires a little more investment? Your sales and marketing strategy should then support your position.”
7. Be confident in your pricing.
“If you’re really good at what you do, you should charge more per hour because the speed and quality of your work will be superior to that of your competitors. But beware of under-estimating projects; be sure to get specific enough with your client’s requirements that you will feel comfortable saying, ‘No,’ or charging more for all requested changes.”
8. Couple pricing with value creation.
“The price of your product is an important part of your marketing strategy. Worrying about the product price alone makes something a commodity (and thus subject to the whims of the general cost landscape). The true power in pricing is coupling it with value creation and being able to articulate that value creation as it ties back to the pricing.”
9. Consider all of your costs.
“Understand and know all of your costs before setting your prices. Early on in our business, we had a good handle on hard expenses like labor, rentals, etc., but we didn’t account for the little expenses that add up like cups of coffee with clients, paper clips, etc. Because of this, we weren’t seeing the profit margins we really expected, but once we included these hidden expenses in our pricing model, things turned around.”
10. Embrace the art and science of pricing.
“Pricing your product or service takes some science and some art. The science comes from the basic math of adding up fixed costs, allocating the variable costs and then adding in desired profit. The art of pricing comes from the design of your business. Do you want to target high-end buyers, discount buyers, or niche buyers? You should think about both of these things before setting your prices.”
– Scott Rawitscher, Co-Owner of Collaborative Business Studios, LLC
11. Don’t second-guess your prices.
“Just because someone wants to negotiate, don’t question your prices. If you do it once, word will spread, and other [customers] will do the same. Conversely, just because current customers refer business to you, don’t be afraid to raise prices. You may feel as though this isn’t fair to these new referrals, but demand dictates your worth.”
12. Consider penetration pricing.
“Scout out your competition’s prices, and then adjust your price to be 50-75% lower than theirs. The idea here is to gain as much market share as possible in the interest of decreasing your competition’s profit while steadily increasing your customer base. After you reach your specific goal in terms of customer volume, increase your prices while adding some additional value to your product or service.”
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