Pricing your products or service is a strategic tool, even a weapon in a good marketer’s hand. Pricing will make or break your business in a heartbeat. Imagine not knowing your costs and selling a large inventory of product 3 times cheaper than the total cost of selling them- ouch! You’d be out of business on your first big sale.
There are few things you need to take care of as part of your Strategic Marketing plan.
- Set a goal for each sale. Your price will be determined by your overall marketing strategy and how you want to position that product or service. Let’s say you have a product to sell – a widget. Do you want large numbers of customers or a few with a higher price? A classic case is selling a widget at $10 and selling a hundred or selling one widget at $1000. Which do you think would be easier to sell? The latter might be a luxury item like a Rolls Royce and the lesser product a Hyundai. The Rolls might be easier to sell in the right market.
- Find out what the competition is charging. In my blog about the Art of War, Sun Tsu suggested sending spies into the opposing army’s camp to gather intelligence. The same works for business. Pretend you want a job done or a product and call the competition. Getting your friends to do it is better for one simple reason. They won’t know as much about the service as you and won’t give it away. One of the methods I like is to call the same business as you but in a completely different geographic location. What harm would it be for them to give you a little advice? I actually called a business for a client in a city several hundred miles away and we made a deal for the guy to come to town as a paid consultant for a few days. Saved a whole bunch of money. Websites and journals etc may give you a hint of what the prevailing pricing may be for a product or service. Once you have found out the pricing range you can still alter the price higher or lower depending on your goals.
- Determine your costs. You have to know your breakeven point – the point where your costs match your sales. How much money do you need to bring in to be profitable? You will likely need to dig out your spreadsheet software and put all your expenses into it. Your expenses for your car, internet, business cards and those hidden ones you forget about like healthcare, an assistant when busy etc.
- Pricing. Selling a service? Are you going to bill by the hour (those clients who need you to hold their hand all the time will kill you) or by the project (if the hourly prices look like they might scare off the client)? Don’t forget to take into account the down time (non-billable hours) needed to find the work you’re getting paid to do. I hope you have a Unique Selling Proposition (USP) or value added benefit to make you different from the other businesses in your industry. For example, your prices could be higher if you promise delivery of your work on a firm schedule, offer more experience than your competitors, or make a healthier food product.
- Your Pricing Strategy. It’s determined by your costs and your competition. Will you have one price for everyone or is it flexible? Are you going to have discounted prices or maybe add something of value to the regular price as an incentive? Your distribution channels will affect your pricing, e.g. stores versus online.
Review your strategies frequently and be aware that you can always make adjustments.