Pricing your products or service correctly as a small business is tricky. You don’t want to charge too high, as you are likely to price yourself out of the market, similarly pricing too low will not allow you the profits your business deserves and potential customers could view you as a cheap option rather than a quality choice.
As with most aspects to business, models have been developed around pricing strategies, some of which are complex. This article aims to sift through the jargon and give tips on how to realise the best pricing strategy for your business in simple terms.
Develop your business goals
These will be individual to your business, but could include increase in profit, increase in customers, development of products and expansion. It may be that you want to be in line and comparable with your competitors, status money is a tool which enables you to compare income in particular business categories.
Analyse the market
Gain as much information as possible from other businesses similar to yours. Collect together information regarding pricing, locality and business models. Research whether the other businesses are offering similar services to you and at what price. This will enable you to look at your own production and delivery costs in order to work out if you can cut manufacturing costs so that you can maximise profits. Discover whether your products are very similar, or if there are any major differences. If your products stand out from the crowd in a positive way, you could price them higher. If they are very similar to what your competitors have to offer you will need to find middle ground so that you don’t charge too high or too low.
Identify your target market and ask for feedback. You need to find out if what you are offering is perceived as being good value, or too expensive. Research can be carried out via surveys, focus groups and face to face interview. Be sure to collate the feedback carefully in order to make tweaks to your pricing strategy as necessary.
Price your products
If you have followed the above advice you will now have a clearer view on how to price your products and services. You may decide to provide a range of services to meet different budgets. You could consider a budget range and a more high end range to cover all bases. Inflation changes frequently, so it is important to adapt to inflation, so that your profit margin stays consistent. Try to incorporate your pricing strategy into a plan for the next few years, highlighting price rises that you perceive necessary.
Remember that developing a pricing strategy is not a “one off” process. You will need to check frequently to see if your strategy is still relevant in a forever evolving marketplace. Carry out market analysis and market research at least annually and be constantly aware of your competitors in terms of what they are producing, their pricing and manufacturing processes. With technology developing at a rate of knots, investing in up to date equipment will help you minimise the costs relating to production.