Q&A: Use Practical Pricing for Long-Term Success
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Q: The economy has put my business in a tight place as costs continue to rise, but my customer’s budgets are shrinking. How do I price my products/services without taking a loss myself, but also without losing my customers?
A: Pricing products and services is already a challenge for many small businesses. Low prices might lure customers early on, but most will simply go elsewhere if they think it’s a better deal. And unlike retailers who can more than offset losses through volume and sales of other, higher-priced goods, service businesses have little choice but to stick to a fixed fee schedule.
Small business owners need to take into consideration what their competition is charging. Don’t simply write down the numbers you uncover; learn why these prices are what they are. Blindly charging the same as someone else may be inappropriate for your business or customers.
Match that information against your costs of doing business—time, supplies, salaries, utilities, health insurance, office space equipment rental, etc. Make sure these costs are accurate, and account for seasonal and other fluctuations. And, of course, don’t forget your profit margin per item or hour. If there is a huge discrepancy one way or another, more research may be needed to make sure everything is accounted for.
To learn more about who else does what you do, consult trade journals and professional organizations that publish baseline rates and fees for national, regional and local markets. Also be alert to price points for types of products or services.
Now establish pricing by the value you bring to your customers. This is what sets you apart from your competition—special expertise, low-cost suppliers, low overhead, location, etc. These attributes should sound familiar because you’ve been building on them from the earliest stages of your business planning process. They will also be the foundation of your sales and marketing strategy.
By this point, you should have enough information to establish a starting point for your prices. But be ready to adjust them as necessary in response to market and industry trends, customer perceptions, changes in your costs, and the competition to keep your pricing strategy in line with your small business goals.
A great way to verify the validity of your pricing strategy is to contact SCORE; a non-profit organization dedicated helping entrepreneurs build solid, successful small businesses. For more information, visit www.score.org.