If you could ask me what one thing business owners could do that would significantly change their business success story, it would be this:
Be more intentional and strategic with your pricing.
Pricing is a critical aspect of any small business strategy – it’s a funny mix of assessing the market, understanding your own limitations, and a bit of basic maths. Setting the right price can help you maximise profits, attract customers, and build a sustainable business.
We know that this is one area that business owners find really, really hard to get right so to help you get a head start in success, here are our top 7 tips for creating an effective pricing strategy for your business:
1. Understand your costs
Before setting prices, you must have a clear understanding of your costs. Calculate both your variable costs (those that change with each unit produced or sold) and your fixed costs (those that remain constant regardless of sales volume). This will help you determine the minimum price you can charge to cover expenses and achieve profitability.
TOP TIP: Don’t forget to include your own personal financial needs as a business expense to make sure that YOU are taken into account too.
2. Research your market
Conduct market research to understand your target audience and their willingness to pay. Analyse your competitors’ pricing strategies to determine where you can position yourself in the market.
TOP TIP: It’s a race to the bottom if you want to be the cheapest, so as well as understanding how others price, remember that may be mis-pricing too AND that customers don’t always want the cheapest. They will often opt for middle price ranges.
3. Choose the right pricing model
There are various pricing models you can consider, including:
- Cost-plus pricing – Adding a mark-up to your costs
- Value-based pricing – Setting prices based on the perceived value your product or service offers to customers
- Competitive pricing – Pricing your products or services in-line with or slightly above or below your competitors
- Dynamic pricing – Adjusting prices based on demand, seasonality, or other factors
4. Offer tiered pricing
Consider offering different pricing tiers to cater to various customer segments. This allows you to capture a broader audience with different budget levels. For example, you can offer a basic, standard, and premium version of your product or service with varying features and prices.
5. Monitor and adjust
Your pricing strategy doesn’t have to be set in stone. Continuously monitor your sales, customer feedback, and market conditions. Be willing to adjust your prices as needed. If you’re not achieving your revenue or profit goals, consider raising prices or offering different ways for customers to get value for money.
TOP TIP: Be careful of discounting easily. There are other ways to offer value, such as bundling and add-ons.
6. Be aware of ‘low price/high volume’ vs ‘high price/low volume’
Think about how many of each product or service you need to sell to create a viable business. The less units we sell, the busier we may need to be and that can make for long hours or an under performing business.
TOP TIP: Don’t assume that lower prices are easier to sell than higher prices. It doesn’t always work like that but always means you need to do more. Customers are willing to pay more if they perceive your product or service as valuable. Focus on creating a strong value proposition by highlighting the unique benefits, quality, and features of your offering. Effective marketing and branding can help enhance perceived value and look for other ways to outshine competitors.
7. Understand that we can stand in our own way of setting the right price for our business
Be careful of generalised sweeping statements you might tell yourself, such as “People don’t have any money at the moment” or “It’s a bad time in the economy.” We hear many people say this when we suggest that prices need to be increased.
TOP TIP: Know that increasing prices can quite often feel uncomfortable but it is necessary for our business survival, so take the plunge and be brave, especially if you haven’t put your prices up in a while. With increasing costs, you’re probably losing money. It might also be a sign that you might need to look to a different market to service.
Remember that pricing is not a one-size-fits-all approach. It requires ongoing analysis and adjustment to align with your business goals and customer preferences. Be prepared to experiment with different pricing strategies and gather feedback from your customers to refine your approach over time.
As a small business, the luxury that we have is that we don’t need millions of customers to make our businesses work. If we price strategically, really figure out who and where our ideal customers are and focus on a quality service that is commensurate with the price that we offer, we can have a profitable, impactful and satisfying business.
If you’d like to have a chat with one of our friendly team about improving the pricing strategy used in your business, please get in touch.