Are you working on your pricing strategy to come up with a perfect one? Setting the right price for your product or service is essential as it communicates value, determines the position of the business in the market and caters to customer expectations.
The perfect pricing plan also plays a major role in whether a business is profitable or not.
For a small business owner, pricing properly is quite a challenge. But it doesn’t need to be so. With adequate attention to the right details and a little help from the right resources, you can come up with the pricing that works for your business.
Your first task is to identify the method you use to price your products or services.
You add up the costs you incurred to make the product or offer the service and add a little to the amount to make profit to establish the price. Well, it’s a faulty pricing strategy because it doesn’t take market conditions into account.
You find out what your competitors charge for similar products or services, decrease it a little and determine the price of your products or services. This doesn’t work either because you may not even be recovering your costs, let alone make a profit.
It isn’t difficult to come up with a winning pricing strategy. But you need to know the way to do it right. But before you begin, do yourself a favor – calculate every cost involved in the making of the product or for providing the service.
You need to focus on both fixed and variable costs. These can be divided into two broad categories – Costs of Goods Sold and the Operating Expenses. You also incur costs on taxes, interest and assessment but you don’t have any control over them.
It’s important to find out the ways your business incurs costs within these two categories. It is the only way to identify the ways you can reduce the costs and turn your business into a profitable one.
For example, you need to be capable of understanding the expense you incur on raw materials. Once you do this, you can find ways to cut down costs with tactics like bulk purchase or tie-ups with specific suppliers to get the materials at lower rates.
You can get a clear and concise view of “The Total Cost Picture” from a SCORE mentor. It helps you understand the costs you need to pay attention to. And it also outlines simple means of cutting down on them.
Once you have the complete cost calculation in view, your next task is to pay attention to the target market. You need to find out what potential customers are willing to pay for the products or services you offer.
Another aspect you need to focus on is the way your competitors work out their pricing models. It isn’t necessary to be at the bottom of the ladder to make profit, but it will be no good if your products or services are overpriced versus that of your competitors.
Another SCORE mentor, Larry Hunt, has put together a webinar “Pricing for Profit: Understanding Gross Profit, Margin & Markup”. It illustrates the importance of the three elements necessary for pricing your products or service effectively.
He also elucidates the concepts related to pricing. Learn how to calculate the gross profits, how to distinguish between margin and markup and how to price your products or services with strategies that works from this.
But pricing isn’t all about doing the right things. It’s also about refraining from the wrong ones. And for a new entrepreneur, it can be a daunting task to identify the must dos from the must don’ts.
Consider the question of freebies. Suppose you have developed a new skin care product that nobody knows about. In such a situation, it can be a good idea to give away free samples of the product to people and let them try it out.
While this strategy works in the aforementioned circumstance, it may not always work. For example, if you give away free but common products when you start-up, consumers may perceive them as of lower value.
It’s essential to have a clear idea about the dos and don’ts of pricing your products and services. And you can find the answers from the SCORE article titled “Pricing Strategies for Small Business”.
Get the information from the right resources to create your perfect pricing plan.
This article is contributed by Evans who is associated with GasStorageDepot.com, which is a leading supplier of Single Cylinder Trucks. Click here to visit the product page.
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