For entrepreneurs, pricing products or services accurately and effectively is a major challenge of starting a business. If you price too low, you may not have the right kind of clients, or product quality could come into question. But if you price too high, you probably won’t have any sales at all. So how do you price what your new business (or existing business) is selling?
First things first.
It’s important to have your strategy in place well before you ever look to price your items. Ask yourself – are you selling mostly on price or are you selling on value? If you’re selling on price, sometimes being the low cost leader can be beneficial, though it’s not a strategy that I would typically recommend. If you’re selling on value – think products without a lot of similar items in the market or really any service – then pricing can be much more difficult.
Follow these three steps to get on your way:
1. Examine common pricing strategies. There are a few common ways to price your product; one that I mentioned above (lowest cost) and a handful of others such as cost-plus, and value-based. Choosing a pricing strategy right off the bat makes this task much easier, so if you feel comfortable doing so, do it!
2. Do competitive research. A few of my clients have mentioned to me that they don’t like examining competitors – they don’t want to be influenced or intimidated. Avoiding the competition is not a practice I would recommend. By pricing out similar products or services, you’ll make sure your prices are comparable in the market – or not. And if they’re not, you know you have to sell them that much more.
3. Understand how much you need. If you’re a consultant like me, you have to price your services at a certain rate simply to survive. Pricing low may bring in more clients, but all the hours in the world at an extremely low rate won’t put food on the table. If you’re making the jump to business ownership for the first time, examine your costs of living to understand what you need to maintain your life. This is a key piece that business owners sometimes realize far too late.
What other strategies are you considering (or have you used) to price your products or services? There are so many ways to price and I’d love to know if there’s something that really works for you! Leave a note below or drop me a line at firstname.lastname@example.org to discuss this topic more.
3 considerations for pricing your product or service