You get what you pay for.
Not only is this adage often true, many customers (including yours) subscribe to this doctrine.
Sadly, many entrepreneurs set their prices based on fear – fear of rejection – instead of what they know they need to charge in order to ensure excellence in product and delivery. As I often say, “undervaluing your products and services makes it impossible to deliver legendary service.”
If you under charge for your products and services, there is no way for you to give your customers what they need to receive.
How do I set prices that add value to clients and profit to my business?
You can’t just pull pricing out of nowhere and expect to gain traction in the marketplace. Pricing your products and services take strategy and business intelligence. You must be crystal clear on the vision you have for your business and other things that influence pricing (i.e. costs, competitors, customers, business objectives, etc.). It’s okay to have an idea of what the market will bare, but that alone “does not a pricing strategy make”.
What pricing considerations should I account for?
Consider the pricing strategy that is best for your business.
- Low pricing: This allows you to position your products and service for mass market appeal, but with a known loss if forecasted volume is unmet. With this strategy, you under price your offering, but plan (and hope) to get a ton of clients to offset the low margins. You can choose this strategy if your goal is market penetration, predatorial or expansion.
- Prestige pricing: Set higher prices if you want your offering to be perceived as exclusive and desirable. When you set high prices, you realize everyone will not be able to afford it, but you are clear on your target audience and their buying power. These customers buy into the adage that “we get what we pay for” and higher prices are synonymous with luxury and quality. In this case image, value, quality and opportunity play a large role.
- Parity pricing: This pricing strategy enables you to “flip-flop” prices based on needs at the time. Here, you focus on being at the right place at the right time. You focus on the “going rate” to target a specific demographic within your industry and marginalize prices to cover expenses.
What overhead costs should I consider to provide products and services at an optimal quality level?
Will you have to hire employees? Have you assessed the true amount of labor time? What about the materials, services and hidden costs? This is where many entrepreneurs lose money because they don’t know their numbers. For example, if you own a service-based business, time spent working with a client is time you can’t spend to gain a new client, so ensure to price it appropriately. Account for all of your regular expenses that are not directly related to producing products or services. Ask yourself, “What must I pay for each month in order to keep my business open?”
What pricing structure will my industry and market bare?
Here is where it gets tricky. Start by conducting market research. In fact, you can conduct informal research with other business owners who provide a similar offering and those who are not direct competitors, but serve the same types of clients.
Often you will uncover a range of industry prices. Where you fall out in that range will depend on the:
Social proof you can leverage to validate your pricing
Confidence in your pricing levels that create value and validate your offering
Marketing execution (i.e. does your sales copy speak to your market differentiation?)
When you take these things into consideration, setting prices can become easier. However, don’t forgeet to review internal and external data you’ve collected while taking your business goals into consideration, so that the prices you set reflect the type of brand you want to build in your industry.
Darnyelle A. Jervey, MBA, The Incredible Factor Speaker, business coach and marketing mentor, is the founder of Incredible One Enterprises.com, Incredible Factor University® and the Leverage Your Incredible Factor System® a proven step-by-step program for more clients, more income and more leverage in your business.
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