Knowing what to charge for your products and services is never easy, especially when you are a new business that hasn’t been around long enough to establish a foundation of pricing plans. But getting your pricing right is a key component to finding sustainable business success. Here are a few things you should know that will help you set the right price.
Know your costs
Know the cost of doing business. Take into account things such as transportation, preparation time, cost to produce your product, rent, printing costs, postage, paying the bills etc. Every cent counts in this equation, so be sure to account for everything. In addition decide on your own compensation and your staff compensation, which also needs to go into the cost. When you first start your business, your salary might not be that high. But do your best to pay yourself a fair salary and reconsider as the business evolves.
Understand your competitors' pricing
Do some sleuthing on your competitors. Look at what they’re charging, compare that to how much it costs to produce your product and see if it creates a viable profit margin. Are you charging less than your competitors, then maybe you should be charging more, or vice versa. This determines your market position. Are you pricing to be the cheapest product or a premium product?
Are you pricing to be the cheapest product or a premium product?
Understand the market
It’s important to know the demand for your product or service, is the market oversaturated or starving for more? Study businesses that failed in your market and learn from their mistakes. Study businesses that are doing well and learn from their success. There are several tools you can purchase (or maybe even use for free) to do market research on your industry. Also, go to your local chamber or business networking events and speak to other business owners and industry association leaders.
The moment you make a mistake in pricing, you’re eating into your reputation or your profits.