Understanding Pricing

Video Transcript

Understanding pricing. Whether you sell a product or service, the price you charge your customers will have a direct impact on the success of your business. Unfortunately, pricing is one of the least understood facets of running a small business. Many small business owners calculate their basic costs and then pick a price arbitrarily. Arbitrary prices, however, mean arbitrary results.

Once you determine what it will cost you to sell your product, it's time for research. You need to find out what the prices are for similar items or services. This is one factor consumers look at when making a purchase decision and thus is important in pricing strategies. If you decide to go for the high end of the pricing spectrum, you will need to add value to what you are selling. This means providing extra services, products, or resources along with your product.

You may think you cannot afford to offer anything extra, but oftentimes, adding value means bringing attention to something you already offer, such as guaranteed online service, quick turnaround, high quality products, or extra features. Many service businesses go for the low end because they want to develop a relationship. This may not be a good idea. Once you become a low priced alternative, it is very hard to break out of this mold. In other words, if you condition your customers to respond to price, they usually won't let you change.

Instead, look at other ways to set yourself apart, whether through superior service, superior quality, or other value added elements.