ABCs of Pricing
Rieva Lesonsky, CEO of GrowBiz Media, outlines the basic principles of establishing pricing for your products or services.
By Rieva Lesonsky
One of the hardest lessons to learn when you’re starting a new business is how to price your products or services. With today’s still recovering economy, consumers expect lower prices, and knowing what price points will bring customers in and which will turn them away is not an easy task. So since it’s September and many of us are in “back to school” mode, here are my ABCs of pricing.
A is for Ask. Ask your friends, peers and potential customers what they would pay for your products or services. Check competitors’ prices and make note of the highs and the lows. What do you think are their price differentiators? Test different prices, and if sales are sluggish, ask your customers why they’re not buying. Or if you bid on a project and don’t get it, ask why. Don’t automatically assume you charged too much and lower your prices. There could be a myriad of other reasons the potential client didn’t choose you.
B is for Be Not a Beggar. Don’t be so desperate for business you price yourself out of a chance to make a profit. If you want to charge an introductory price, make sure the customer knows the low prices won’t last. If you’re bidding on a service job, the same strategy applies. Offering a lower introductory price enables clients to see your quality of work, but let them know the next job will cost more. Remember: Sometimes cheap prices signify poorer quality in the customers’ minds—we are all too familiar with the phrase “you get what you pay for.”
C is for Compare to Your Competition. What makes your product or service different from your competitors’ and why would a customer buy from you instead of from someone else? These are important questions to ask yourself when you’re comparing your price structure to your competitors. Are customers buying because of your reputation, your name or your position as a community leader? Or is it a situation where the lowest price wins out? When you study your competition and see how much they charge, compare your overall qualities as a challenger in the market and base your pricing on where you fall in the industry.
Finally, the best thing about pricing is it never has to be permanent. You need be as flexible with your pricing as the economy demands. Make sure you follow current pricing trends, and you’ll find your business making top grades.
Rieva Lesonsky is CEO of GrowBiz Media, a media and custom content company focusing on small business and entrepreneurship. Follow Rieva at Twitter.com/Rieva and visit her website, SmallBizDaily.com, to get the scoop on business trends and sign up for Rieva’s free TrendCast reports.