Pricing for profits is a challenge for every business- both big and small. Business owners strive to find that sweet spot that customers are willing to pay and what you as a business owner finds profitable.
A key factor to consider while pricing for profits is to ensure that customers do not perceive you as too profit-hungry and takes their business elsewhere as a result. We examine how to find a balance between pricing to attract and retain customers and ensuring you build profits for your business.
Evaluate the Market:
The current state of the market, factors like inflation, etc. will give you an understanding of what is an acceptable and profitable price for your products or services. It is important that you gauge the market accurately as well as look into competitor pricing. Often small business owners undervalue their products leading to decreased profits and sales as products with lower prices can be perceived to be of lower quality. Understand your market and then you will have a better idea of the price flexibility of your product.
Understand Your Customer:
Your target customer, their spending power and how they value your product are critical factors that should affect how you price your products. It is important that you understand how your product stands out from the competition and then, use that as a means to sell to your customer. Before you start out, create a focus group with friends and family to get a clearer picture on how your product is viewed and what someone might be willing to pay for it and what they would need you to deliver in order to pay more for your product.
Your Operating Costs:
Your operating costs- how much it takes to create, market and sell your product is one of the essential factors in determining a profitable price. Be sure that you don’t miss out on any of the costs that go into running your business. Often the trap entrepreneurs fall into is that they only consider their production costs and not the manpower and other overheads that contribute to running your organization. Get a clear idea of your costs before taking a look at pricing.
Test Your Pricing:
Finding the right pricing is a practice right between an art and a science. But there is only one way to figure out if you’ve got it right – by testing it in the market. Start small with a soft launch, gauge the response from customers and adjust your pricing accordingly. If you feel you would like to start on the lower side to attract more customers, ensure that you inform them that the price is an introductory offer. This way they will not be surprised or put off from making another purchase when the price goes up. If customers feel the price is high, do not dismiss them but instead spend time understanding how you can create a price that works for them and your business.
While the rewards of seeing your products or services being well-received, remember for your business to survive first and then thrive, you need to find the most profitable price margin for your pricing.