The price you charge for your product or service is one of the most important business decisions you make. So where do you start on pricing your goods or services?
There is the well-known story of the locksmith that started out new and learning the trade then become an expert. He would quote for the work, went in, did the job done and left. The more experienced and better he became, the less time he spent physically on the customer premises. The less time he spent, the more customers got upset with his price. When he was learning and spent longer on the work and at their premises, the cost was the same and customers were happier.
One of the secrets to business success is pricing your products properly
Price your products correctly and that can enhance how much you sell. Get your pricing strategy wrong and you may create problems that your business may never be able to overcome. So where to start?
The biggest mistake many businesses make is to believe that price alone drives sales when it’s actually your ability to sell that is what drives sales (and that means hiring the right sales people and adopting the right sales strategy). You need to be able to sell products and services to be able to make revenue to cover your costs. It seems like an endless treadmill.
Nobody cares how hard you work
Charging for your time can be tricky. It can be even harder when you have to do research or spend unseen time working behind the scenes prior to any delivery. Nobody is prepared to pay for time they cannot see the value in. Whether you are writing an article, drafting legal terms, designing a website, writing an ebook – it doesn’t matter to many customers when they cannot see or understand what may be involved. They don’t care how hard or long you work. They only care about the final output and cost.
Equally, even if you provide a service that your customers can actually see the time you are working or what you are working on, it can be tricky to manage expectations and pricing.
So where do you start on pricing your goods or services?
To work out pricing for your goods and services:
1. Know your customer
Do some market research to try to get to know your customer. You can do anything from informal surveys of your existing customers to general reviews of their demographics and purchases. Or, if you have the funding, you can employ professional firms to do this market research and analysis for you. Then figure out what segment of consumers you are targeting (eg budget vs convenience) and price accordingly.
2. Know your costs
This is fundamental to your pricing as you need to cover all your costs. And you need to make a profit. Be sure to include in your costing all actual costs, operating expenses, salaries, capital for future expansion, licenses, insurances, accounting and your time.
3. Consider where the market is going
Is it a short-term demand or will it be something that will grow with time? Is your revenue a constant stream or a one-off product?
4. Know your competition
Review what they offer, charge and include with their products or services. Compare to see if they are offering the same packages, products or services – it’s always a good idea to differentiate your goods and services.
5. Charge slightly higher than you think
You can keep changing your fees to match demand – move them up or down to judge the market demand. You may be surprised at what people are willing to pay for your products or services.
6. Review your prices regularly
Established businesses do regular price reviews. You should always be testing new prices and new additions to products/services; trying new combinations and adding bonus items. If you never raise your prices, you will not last in business for long. Sudden, rather than gradual increases can alienate and scare your existing customers.
7. Know your revenue and target.
You should know what you need to achieve with selling your product or services. You should keep your eye on this target at all times.
Whatever you decide to charge for your goods or services should be temporary pricing only. It will need to change to match your costs, to grow your business and to meet the demand. Make sure you can stay in business with your pricing decision and that you are happy with both the price you choose and the quality of the goods and services you are providing. Everyone else will likely be too – either way, you will soon find out!
And if you have any other guidance (or stories) on how to price, we are always happy to hear it!