Pricing: Seven things to consider
The right cost model can keep your business afloat and your customers happy. Consider these points when setting your price.
I have seen a number of micro business owners improve their profitability and longevity by taking the time to get their price right.
It may take more than one attempt to find a pricing model that best fits your small business, but don’t be tempted to put this matter in the ‘too hard’ basket.
When thinking about pricing, think about value.
You must adopt a holistic perspective and be prepared to ask yourself questions relating to how your business creates, delivers and captures value. This may sound complicated, but in most cases the process can be summarised by the following seven points.
1. Value proposition
Consider the value you offer your customer segments. What sets you apart from your competitors?
2. Key activities
"Your price will frequently influence purchase decisions, so give it as much attention as other aspects of your business strategy."
Consider the things you do to make your value proposition happen.
3. Key resources
Consider the things required to deliver on your value proposition. These can be tangible items such as equipment, facilities or premises – or intangible things, such as knowledge, skills and experience.
Want more articles like this? Check out the pricing strategy section.
4. Customer relationships
Consider how you relate to people in your target market. How do they prefer to communicate? Are they digital natives? Or do they prefer a more personal, face-to-face approach? How much interaction and/or information do they need in order to make a decision?
5. Customer segments
Customer segments are the demographic groups you serve. By having a clear definition of your target audience you can better understand, and therefore better deliver on their wants and needs.
6. Revenue streams
Consider the ways you make money. They may be a direct result of your own sales efforts, or the result of indirect activities like cross-promotion and referrals.
7. Cost structure
Consider how you pay to run your business. Increasing competition and the growth of services like industry comparison sites means that a little extra research (and perhaps some negotiation!) can secure you a better deal on many everyday business needs.
8. Key partners
Make sure the vendors and suppliers you do business with understand their role in the delivery of your value proposition.
Whether you are selling to consumers or to other businesses, your price will frequently influence purchase decisions, so give it as much attention as other aspects of your business strategy.
What are your thoughts on this article? Do you have any other pricing points to consider?