How To Successfully Price Your Products and Services

3 Sep

One of the secrets to business success is pricing your products properly. Price your products correctly and that can enhance how much you sell, creating the foundation for a business that will prosper. Getting your pricing strategy wrong could create problems that your business may never be able to overcome.

There are a variety of different types of pricing strategies in business. However, there’s no one surefire, formula-based approach that suits all types of products, businesses, and markets. Pricing your product usually involves considering certain key factors, including pinpointing your target customer, tracking how much others in your industry are charging, and understanding the relationship between quality and price. The good news is you have a great deal of flexibility in how you set your prices. That’s also the bad news.

This is my formula for meeting your business goals in pricing your products or services, what factors to consider when pricing, and how to determine whether to raise or lower your current prices.

Get Clear about Making Money  businessowners.jpg
The first step is to get very clear about what you want to achieve with your pricing strategy: You want to make money. That is why you own a business. Making money means generating enough revenue from selling your products so that you can cover your costs, make a reasonable profit and continue to expand your business.

The biggest mistake many businesses make is to believe that price alone drives sales. Your ability to sell is what drives sales and that means hiring the right sales people and adopting the right sales strategy. The price is merely a reflection of the value you are providing to your customer base.  Let me give you an example of what I mean. The difference between an $8,000 Rolex and a $40 Seiko watch is that the Seiko is actually a better timepiece. It is far more accurate.  The difference is your ability to sell the Rolex and the “perceived value” to your customer.

Now let’s talk about the two mistakes entrepreneurs make the most often when it comes to pricing their products and services – under pricing and over pricing.

 

priceing-too-low-675x320.jpgUnder pricing. Pricing your products too low can have a disastrous impact on your bottom line, even though business owners often believe this is what they ought to do in a down economy, when they are not generating the volume of sales they would like, or when they are first starting their business in a potentially crowded marketplace. Accurately pricing your product or services is important at any point in the economic cycle, but no more so than in a difficult economy. Many entrepreneurs (particularly women) mistakenly under price their products or services attempting to convince their customer base that their product is the least expensive alternative and hoping to drive up sales volume. However, more often than not, it is simply perceived as a cheap alternative to a more “valuable” product or service. Remember that consumers want to feel that they are getting value for their dollar and most are unwilling to purchase from a seller they believe to offer products or services that are perceived to be of lesser quality. Entrepreneurs also need to be very careful that they are fully covering their costs when pricing products. Reducing prices to the point where you are giving away your products or services is a sure-fire way of putting yourself out of business.  The only time you under price something is when you are clearing out old stock to make room for a new product or service.

 

pricing-too-high.jpgOver pricing. On the flip side, overpricing a product can be just as detrimental since the buyer is always going to be looking at pricing from others in your industry.  Pricing beyond the customer’s desire to pay can also decrease sales. Entrepreneurs (particularly men) will be tempted to price too high right out of the gate. “They think that they have to cover all the expenses of people who work for them, the lease, etc. and this is what price it takes to do all that. Put yourself in the customer’s shoes. What would be a fair price to you? He advises taking short surveys of customers with two or three question and asking them whether your chosen pricing for your products or service seems to be fair, do they see your product or service as valuable to pay that price, and most importantly would they actually be willing to purchase it themselves.

 

5keys.jpg

Next week we are going to take this a bit deeper and discover the five key factors you can use to successfully price your products and services that will help you generate more revenue, build your brand, and successfully grow your company.  I know from all the questions I have been getting that this is a hot subject, so please feel free to post your comments or questions below and be sure to add a link to your business website.

 

 

 

 

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