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2018-11-28 16:45:35Professional ServicesEnglishAs a new business, how you choose to price your services could make or break you. Charge too little and you won’t have the profit margin...https://quickbooks.intuit.com/au/resources/au_qrc/uploads/2018/11/iStock-833439378-3.jpghttps://quickbooks.intuit.com/au/resources/professional-services/determining-the-right-price-structure-for-your-business/Determining The Right Price Structure For Your Business | QuickBooks Australia

Determining the right price structure for your business

2 min read

As a new business, how you choose to price your services could make or break you. Charge too little and you won’t have the profit margin you’ll need to sustain your business, but charge too much and you’ll risk pricing yourself out of the market. Use these six simple tips to ensure you get your pricing structure right the first time around.

1. Know your costs

The first thing you need to determine is how much it’s going to cost you to deliver the service you’re selling. That includes everything from your payroll expenses and the rent you pay for your office space, to your marketing expenses, and hardware and software costs. This should give you a good baseline to work out your break-even point.

2. Set your profit margin

How much profit do you expect to make on each of your service offerings? It can be good to look to your competitors here. What are they charging for similar services and how much profit would that leave you after subtracting your costs? If your profit margin is too low, it could be a sign that your costs are too high and that some reductions need to be made.

3. Understand your market position

Where does your business fit into the market? Are you a premium provider or are you focused on providing more budget-friendly services? Your pricing structure should naturally correspond with your market position. However, if you are positioning yourself as a premium provider, be very clear about the extra value you’re offering that justifies a higher price point.

4. Assess your market penetration

Startup businesses that are entering a new market may choose to charge less than their more established competitors in order to increase their market penetration in the short term. Lower prices may be used in the early days of your business to help attract clients, but be careful not to go too low. You don’t want to engage your competitors in a race to the bottom.

5. Implement an upselling strategy

Many businesses choose to build an upselling strategy into their pricing structure. You could, for instance, introduce ‘bundle pricing’. This usually involves packaging services together for a single, overall price. It can be an effective way to encourage clients to try complementary services that they may not have chosen if they were being offered at individual prices.

6. Consider your discount policy

Yes, people love discounts. But it’s also important not to overdo it here. You may want the power to offer discounts to get key clients across the line, but if your discount policy is not regulated, it could affect your profit margins. Setting a bottom price for each of your services that protects your profit margin and communicating clear discounting rules can prevent your profits from disappearing.

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Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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