Business owners and entrepreneurs, have you ever struggled with pricing? Is pricing easy? The answer is no. Pricing must be one of the toughest tasks to complete when operating a new or existing business. Business owners and entrepreneurs, including myself, have gone back and forth, and lost sleep, just to determine how they will price their products and services. I have researched a few common pricing strategies and will discuss them with you. If a price has been a challenge for you, then keep reading.
What Is Pricing?
Pricing is the process of placing a value on a business product or service. It is critical to research your industry and common trends before setting your price for your product or service. Consider price setting as a “balancing act”. I advise each small business owner to develop the right pricing strategy based on their goals.
Pricing Strategies
There are many pricing strategies that exist. For the sake of time, I will discuss 3 common strategies. I will define and advise you of the pros and cons of each.
Cost-plus pricing. Calculate your costs and add a markup.
Pros: Cost-plus pricing is easy to figure out. It can provide consistent returns should all your costs remain the same. This is one of the easiest ways to determine the price.
Cons: Cost-plus pricing doesn’t factor in an increase in labor, supplier costs, market conditions, or perceived customer value.
Competitive pricing. Set a price based on what the competition charges. Keep in mind that setting the lowest price is not always the best practice. Especially if you are not turning a profit. On the other hand, setting your price too high can result in a lack of business because the customer is not willing to pay that amount.
Pro: This strategy can be effective if you can negotiate a lower cost per unit from your suppliers.
Cons: This strategy can be challenging to sustain as a smaller business. Lower prices equal lower profit margins. You will need to sell a higher volume of products than your competition.
Penetration pricing. Start with a low entry price then increase the price over time.
Pros: Discount pricing strategies are effective for attracting high volumes of foot traffic to your store. This pricing method is also great for selling out-of-season or old inventory. I have found this useful in new businesses entering the marketplace.
Cons: If used too much, discount-based pricing could give you a reputation for being a bargain retailer and prevent consumers from purchasing your products at regular prices.
You have some homework. You must discover what pricing strategy will work for your business. The above-mentioned strategies are a good place to start. If you have questions, feel free to contact me at 757-667-8042. You can also email me at jason@crawleyconsultinggroup757.com.
Thank you for reading
References
Peacock, L. (2019, April 20). Pricing Strategy: 10 Ways to Find the Perfect Price for Your Products. Shopify. https://www.shopify.com/blog/pricing-strategies
The Price Is Right: 14 Strategies for Finding the Ideal Price for Your Products. (n.d.). Shopify. https://www.shopify.com/blog/pricing-strategies#2
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