Whether you have just started a new business or are a seasoned veteran in your industry with years of experience, knowing how to properly price your product or service is paramount. Finding that pricing sweet spot that isn’t too astronomically high or painfully too low can be quite tricky. It’s a high stakes game in which setting prices at budget-friendly levels can kill your bottom line while profit margin padding pricing can turn off customers causing them to shop for a better price/value relationship. But, all things considered, why are you in business? Sure you want to provide a great product or service but you also have to generate profit. How can you keep your profit in mind while pricing? Well it’s not as difficult as it sounds.
· Understand your costs
Before pricing your product or service have a complete understanding of all associated costs. Logically you want to start above your fixed costs (costs that are always the same, such as rent, phone, salaries), while understanding the variable costs (those costs that are directly related to producing that product). Calculate your costs – or hire a professional – and then prepare for the next step.
· Understand your product or service
What does your product or service do for your clients? Is it innovative or do you operate in an industry that is filled with competition? If you are conducting business in an industry devoid of competition, setting your prices at high levels is a easier (provided people desire your product.) But more competition can make setting prices higher a bit riskier.
· Price high and deliver
Even if you face unwavering competition you can price for profit. When pricing your product or service at levels higher than your competitor keep this mind: price high plus higher value added. You offer an outstanding product or service so why shouldn’t you charge more? Notice the the price difference for clothes from JCPenney to Nordstrom – higher prices with higher value is the key.
The race to see who can have the lowest price, is almost always, a sure path to business failure. The only one who might win that battle is a company with high operating efficiencies, example, Walmart.
Understand your costs and really think about your product or service. Comprehend what your competition is doing but don’t obsess with every move they make. When considering the right price to maximize your profit, don’t engage in self-defeating pricing wars instead deliver blue-ribbon award-winning service to your customers. If you deliver and exceed expectations, pricing for profit can be easy.