Determining your price can be an overwhelming and stressful task. Whether you sell a product or a service, your goal is ultimately to make a profit.
When it comes to pricing, you are in control. Set the price too high, and sales may be limited. Set the price too low, and margins might be strained.
So what is the ideal combination? It’s not always easy finding that magic number, but here are some best practices to keep in mind along the way.
Set your price first. When first starting out, many people spend much time and brain power on finding the right location, designing the right ads, and securing the right suppliers. Setting your price first will allow you to decide what you can invest in your location, promotions, etc.
Your expenses mean very little to the buyer. Consumers care very little about your production costs, so it is not recommended that you set your price based solely on how much it costs you to make your product or deliver your service. How much people are willing to spend is a wiser focus.
Lower is not always better. Sure, there are customers out there who want the lowest price and nothing but; however, they are not the majority. Setting your price lower than your competition might not work. Today’s consumer considers quality, loyalty and credibility, etc. The lowest price might undervalue your product or service.
Remember, prices are always flexible. Unless you are ruled by rock bottom prices or controlled by a large franchise, your prices are never set in stone. It would be smart to remember that a small change in your price can have a significant effect on your bottom line.
Be confident. Once you have found the ideal number, stay confident. It took time to find the suitable price tag. Listen to your customers and always watch the market but recognize your own product or service strengths as well. You are the one that sets the value!
Understanding your price
So, why do so many entrepreneurs mess up their pricing? How do we still get it wrong when there are so many tips and guidelines to follow? The truth is, many people just make up a random number and hope for the best.
You find you’ve underpriced; now, what can you do to fix it? When adjusting your price, it is important to analyze how a price change will affect your profitability. If you need to raise prices, do so gradually and in small increments. A large hike in prices may alienate existing customers. As with any price changes, be sure to monitor your sales volume immediately after the change.
Lowering prices is a little trickier, as you want to avoid the perception of decreased value. Often, it’s better to offer discounts or provide a buyer incentive program. Sometimes your product or service is very price sensitive because you are trying to drastically increase your market share or all your competitors are lowering their prices. In those cases, you may have to consider dropping your prices, but only if you can still make a profit.
Deciding on the right price is both a science and an art. The great thing is you have the power to test, recalculate, and make adjustments. Be strategic, be logical, be smart. Only then will you know when the price is right!