By Emily Suess
To keep your small business running, you need to find the sweet spot for pricing your products or services. If you give pricing the consideration it deserves ahead of time, you should be able to hone in that number from day one. Use the following seven tips to make sure the price is right.
1. Gather Pricing Data
Plenty of organizations, trade groups, and data compilers can help you get your hands on industry standard pricing for your market. Make sure your information offers a regional breakdown. What sells for $5 in Oklahoma might sell for $15 in California.
2. Base Prices on the Income You Need
If you want to gross $75,000 a year as a consultant, you’ll need to estimate how many billable hours you’ll have during the course of a year. (If you consult 20 hours a week for 48 weeks during the year, your hourly rate would need to be roughly $78 per hour.)
You can perform the same calculations for a product-based business, but you’ll need to estimate how many items you can sell and determine the cost for you to manufacture or procure those items.
3. Use Pricing Psychology
We all know by anecdote that the human brain prefers “magic numbers.” That means setting prices at $99 instead of $100 or $39.99 instead of $40. Consider pricing your items for a penny or a dollar under a nice, round number. You can also use pricing psychology for services: “Get carpet cleaning in up to three rooms for just $99!”
4. Limit Deal Pricing
Consumers tend to think of the original price as the product’s actual value. So slashing prices too frequently can devalue your goods. If you do offer intro rates or discounts, make sure the original price is clearly visible and set a firm expiation date for the sale price.
5. Track Competitor Pricing
Your business doesn’t exist in a bubble. Keep an eye on what your local competitors are charging for similar products, but don’t immediately make a move to undercut them. You can charge more if you can successfully articulate the additional value customers get when buying from you.
6. Add a Little Padding
This one is important for service businesses. If you add a little extra to your hourly rate, you can bring in what you need to stay afloat without billing clients down to the millisecond. Smaller tasks that don’t get billed individually can be marketed as inclusive add-ons that add value to the service.
7. Know Your Own Value
In all of this, don’t forget to remember what you’re worth. It’s not uncommon for small business owners to underprice products and services because they undervalue themselves or what they do. Consumers may see something priced low and assume it’s of little value.
If you find that after you do your research and crunch those numbers that customers won’t pay what you’re asking, you still have options. You can cut overhead, reduce your markup, increase efficiency, or sell more units depending on the circumstances.