It can be hard to figure out the best pricing practices for your business. If your prices are too high, it might be hard to attract customers, but if your prices are too low, you will lose out on some of the income that you deserve.
The most basic rule of pricing is that your prices should cover the expenses of your business, like labor and marketing, and they should allow you to produce a profit margin.
You don’t want to simplify your pricing practice though. To get the most out of your pricing, you should rely on pricing strategies that are designed specifically for your business.
What is a Pricing Strategy? And Why Does it Matter?
Pricing strategies are used to help companies determine their prices.
When a company wants to adopt a pricing strategy, they analyze several pricing methods and models, and they come up with a plan that will be the best fit for their business.
Ultimately, companies want to select a pricing strategy that will help grow their profits and revenue.
What to Consider When Selecting a Pricing Strategy
There are several factors that you need to think about before you choose a pricing strategy for your business. These factors should greatly influence your decision because they will have a huge impact on the growth of your business.
- Target Market
- First, you should conduct some research on your target market. You will want to find out how much people currently pay for a product or service that is similar to what your business will offer.
- Then, you will want to determine how much your target market would be willing to spend on this product or service. This research should serve as your guide as you develop a pricing strategy.
- Your Competition
- You will also want to look over the pricing strategies of your competition. Their pricing methods and models will help you determine what other companies charge for the same product or service.
- Then, you can decide if you want to match the prices of your competitors or if you want to set your prices a little higher or lower than theirs.
- The Value You Offer
- Ask yourself: What do your customers value about your product or service and how much do they value it?
- If you think about the value you offer your customers, you might get a better idea of what the customer is willing to pay.
- Your Break-Even Point
- Before you select a pricing strategy, you need to find your break-even point. You should total the costs that are required to create your product, sell your product, and get your product to the customer.
- Obviously, you want to make a profit, so you don’t want the costs of your product or service to be more money than you intend to charge.
- Crunch the numbers and be sure to consider your costs before finalizing your pricing strategy.
- Growth Goals
- Lastly, think about your growth goals. Maybe you want to set low prices, so your business can grow at a rapid pace. Maybe you want to set competitive prices that will result in slow, but steady growth. Whatever your goals are, make sure that they play a part in your pricing strategy.
Common Pricing Strategies to Consider
Selecting the best pricing strategy for your business can be a challenge, but the good news is that you have lots of options. You also don’t have to pick just one. There may be several pricing strategies that work for your business.
Here are some very common and very successful pricing strategies to consider.
Value-Based Pricing
This pricing strategy is often used by businesses that sell a:
- Physical product
- Digital product
- Service
They try to determine their value to the customer, and then, they set their prices accordingly.
Ashley Deland, Forbes Councils Member, also notes that prices can be adjusted to better suit the market. Your prices do not have to be permanent. Feel free to make changes as needed.
Project-Based Pricing
This pricing strategy is implemented by businesses that sell a service. If you choose project-based pricing, you will charge one flat fee for your service, instead of charging by the hour.
Customers typically like this option if they are wanting you to take on a big project that will need a lot of your time and attention.
Competitive Pricing
Competitive pricing is used by e-commerce businesses. For example, an e-commerce business will review the market rate and the rates of its competitors. Then, they will set prices for their services, based on the rates of others.
Hourly Pricing
It can be hard to determine how much you should charge for your services, but businesses that sell a service should consider using hourly rates.
If you charge by the hour, your customer will pay you for the amount of time that it takes to provide them with their desired service. As long as your business stresses the importance of efficiency, your customers will be happy to pay an hourly rate, because they won’t have to pay for any extra time.
Talk to an Expert for Help with Pricing
Pricing your products or services correctly is essential for growing your business, so it’s extremely important to select a pricing strategy that can grow with your business.
If you need help with selecting and implementing the right pricing strategy, turn to an expert. Contact Pasquesi Partners today!