What’s Your Pricing Strategy?

Date posted: August 20, 2012

By Rieva Lesonsky

Every small business owner, whether they own a startup or a thriving business, struggles with pricing strategy. Especially in today’s cost-conscious times, pricing a product or service too high can price you out of the market, while pricing too low can leave you without enough profit to survive. What should you take into account when setting prices for your products or services?

Start your pricing strategy by determining the cost of manufacturing or buying what you sell, or providing the service you offer. This can include things like labor, equipment and materials. You also need to consider your ongoing overhead costs, such as the cost of renting your store or office, utilities, payroll and the like. A good pricing strategy will charge enough to cover all these costs and still make a profit.

In addition to running these numbers, you need to consider a few other factors in your pricing strategy:

Your competition. Keep up-to-date on the prices your competition is charging for similar products and services. As you survey the market, you’ll likely see a huge range in prices for the same things. Figure out why certain companies are able to charge more and why others charge less. Maybe the higher-priced competitors offer top-notch service, exclusive products people can’t get anywhere else or lots of extras. The lower-priced companies are probably bigger with economies of scale in their favor.

Your sales channels. The methods you use to sell your product or service (retail, ecommerce, sales reps) will affect your pricing. If you sell camping gear directly to customers via a website, for instance, you can likely charge less than if you wholesale your product to retailers who have to mark up the price so they can profit. If you sell business services on a website where customers pick their own package and subscribe, your costs are much lower than if you have a team of salespeople who personally consult with each prospective customer.

Your customers. It all comes down to what your customers are willing to pay for your products or services. If you aren’t selling enough, that could be a sign that you either need to lower your prices or change your sales and marketing strategies. Be careful not to cut your prices so low that you’re not making a profit—if you do, all those customers you’re attracting could hurt your business more than they help it.

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