Pricing the goods and services of your small business

by Startacus Admin
Pricing the goods or services that your small business offers is a deceptively difficult and complex task.
Few things contained in your marketing strategy hold the level of potential impact to your business as your pricing does. A miscalculation, an overestimation or indeed an undervaluation could all have a severe effect on the performance of your venture.
Whilst many have tried to create a systematic, methodical, all purpose formulae for the pricing of goods and services, none have succeeded… and there’s a few very good reasons for that. Not least of which is that the whole pursuit is nothing but a load of codswallop.
If you are seeking a mathematical formula, independent of any number of unique variables, which can tell you how much you should be charging for your goods / services, our humblest apologies, we cannot help you.
But if it’s some sensible advice and a guiding hand that you're after, then we are happy to oblige.
How does your customer price your goods / services ?
From your own experience as a consumer, you will know that a certain ‘horizon of expectation’ greatly influences whether or not a customer is willing to purchase the goods / services that your offer. Think of the moment that you see an item of clothing that you would quite like to buy… that is until you flip over the price tag, and make a hasty retreat in the opposite direction.
Generally speaking there are a number of factors that a person will take into consideration (perhaps even subconsciously) before applying an expected price to what you have to offer.
Some of these include ;
- Prices of the same / similar products elsewhere
- The perceived quality of the product / service
- The level of convenience which buying it from you carries, and whether this convenience is sufficient to warrant a premium
- The faith they place in you as a business
- Added value that has been applied
- The expectation (or lack thereof) for ongoing / post sale assistance / guarantees should these be necessary.
The weight given by the customer to each of these factors is impossible to accurately quantify, but by assessing your own products and services alongside some them, you can begin to build a framework around which you can create a pricing strategy for your business.
Simply put, the customer must perceive the value of the good / service to be less than, or equal to the price you are requesting.
How do your competitors price their goods?
You need to examine the prices being charged by your competitors alongside what value you assume a customer would apply to their goods / services.
Of course this analysis, is still taking a rather simplistic approach to the question of pricing, since it assumes that your customers are bound or influenced significantly by monetary constraints, which of course they might not be.
But generally speaking, you may justly assume that for every 100 customers who apply significant considerations based on price, there may be one who does not. Therefore in most cases, it makes good sense to pay careful attention to the prices of your competitors.
Trialing your Prices
When opening a new business, or adding new lines to your existing range of products and services, you should always begin your pricing strategy with a pricing trial. This is because no matter how meticulously you calculate the value of your products / services to a customer, there will invariably be discrepancies which could ultimately affect the level of trade that you enjoy.
Rather than following a specific regime or price trialling, you need only commit yourself to reviewing your prices after a short period of time and remaining open to lowering (or in fact) raising your prices, based on the evidence provided by your sales. Disappointing sales can sometimes be improved by price reductions, but of course there is no guarantee of this, since price may be only one of a number of factors affecting your level of sales.
Reviewing your prices
Assuming that the perceived value of your goods / services remains the same in the eyes of your customer, it would be reasonable to expect, you will have to raise your prices, at least in accordance with the level of inflation every year, to ensure that your profit margins remain constant. Of course this is just one of the factors that you need to take into consideration when reviewing your prices. Some of the others that are worth bearing in mind include.
- Have your competitors altered the prices of the same / similar goods / services?
- Has there been an increase / decrease in demand?
- Have your costs or overheads increased / decreased?
- Do you need the same profit margin from your products services?
Hopefully these basic tips will come in handy when pricing the goods / services of your small business. If your are involved in the selling of crafts or homemade goods, take a look at our guide on pricing such products.
If you are a startup and need some additional assistance with your marketing or startup PR, then then you might like to take a look at our startup publicity programme.
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Published on: 22nd October 2014
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