Pricing your business properly is one of the secrets to a successful business. Almost every average person today wants to start a business. It’s good – not just because the rate of unemployment keeps increasing, but also because going by today’s economy, it is becoming apparent that to survive, you need more than one stream of income.
So, if starting a business is fast becoming a popular decision, it would simply make sense that the business is a money making one. Which is most likely the reason it was set up in the first place.
Secret To A Successful Business
For a business to yield money, it has to be considered successful. And, one of the secrets to having a successful business, is pricing your products or services correctly. A rightly priced product or venture, can determine how much you sell or otherwise. Also, it determines how much money the business makes and how successful the business turns out.
If you dabbled a bit into the study of marketing like I did, you would know that price is one of the basic ingredients of marketing. So, you have a phenomenal product, a great location (place), a brilliant promotion to get the word out and then your price. Getting the pricing wrong, can leave you either overpriced or underpriced. Either can create problems for your business in more ways than one.
How Do You Get The Pricing Right?
So, how do you get or select the best price for your products or services? There’s good news and bad news to that question. The good news is there’s no one method fits all. And the bad news is, there’s no one method fits all. There are a whole different kinds of pricing strategies in business. Each one is peculiar to the product, service and/or market.
Therefore, selecting the appropriate price for your product/service would involve a careful consideration of various factors considered key to your business.
You have to consider your customer or target audience. Also, you have to be informed about your competition and their prices. In addition, you must have a full grasp of how much it is costing you to do business and stay in business. Finally, you have to understand the factors/powers that control the market (demand, supply, inflation, etc.).
Factors To Consider When Pricing Your Product Or Service
Briefly, let me say a thing or two about the factors I have mentioned above;
Know Your Target Audience
Ask yourself basic questions like; who is my ideal customer? Who am I serving? How old are they? What do they do? Where do they live? How do they buy?
Asking these questions sets the foundation and puts you on the path to finding answers to your questions. Because, the truth is for a serious business, you cannot afford to assume.
A market research provides the answers you seek. It is by conducting a market research that you know your customers. This is how you understand for whom you set up your business, because I strongly believe that you did not set it up for yourself.
The good thing is, that there are actual professionals who specialize in this sort of research, and whose services you can employ, if you do have the financial capacity.
On the other hand, a study of your customers through short questionnaires either via e-mail or in person can also help you acquire the information that you need, from what they buy to how they buy and also the price sensitive ones. All of these information is to help you identify what market you want to target, and then tailor your products and prices accordingly.
How Much Does It Cost To Stay In Business
Your business is said to be doing well, if you not only recover your costs, but also make profits. Therefore, a basic principle of pricing is to understand how much your product costs; and this involves the cost of production (raw materials), the overhead costs (rent), electricity, staff salaries (if any), delivery, storage and other exigencies. With this initial information, you can then determine how much you need to mark up the price, so as to sell at a profit.
Know Your Competition
Identifying your competitors and staying abreast of what pricing strategies they use is also an important factor. This particularly helps to make sure that you don’t end up being perceived as being overpriced or underpriced.
However, this is particularly tricky because when comparing your competitors’ pricing, you want to understand their products well; are they direct substitutes for your products or not? You want to keep in mind the locations and/or regional differences, and also more importantly what additional value or service do you offer that they do not.
Understand The Value Of Your Product Or Service
Lastly, one important factor which I have discovered and come to understand from reading different books on pricing, is understanding the value of your product or service.
Often, we are quick to put a price based on what it costs us to put the product together, and in the process we forget to factor in the value of the product itself. By value, we mean the perceived worth of the product or service to the customer; the benefit the customer derives from the use of the product.
Profit is fully maximized when you fully understand the benefit the customer is gaining from your product or service, or the value that product or service holds in the mind of the customer.
For example, a wedding dress may cost seventy thousand Naira to produce, but may be worth more to the customer who considers that day the most important day of her life yet. The understanding of this fact for a tailor or designer, can afford him or her to charge a hundred and fifty thousand Naira for the dress.
Ultimately before you set that price or choose a pricing strategy, remember that knowing your target customer enables you tailor the appropriate product to their needs. Then you can put a price tag on it not just based on the cost of production, but also in line with the value your product holds and the benefit it provides for the customer. All the while keeping one eye on your competition too.
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