Of the many decisions and dilemmas small business owners face, the issue of pricing products and services is sometimes one that causes entrepreneurs the most strife. How do you establish pricing to keep your business competitive and profitable – to make sure you stay in business?
Here are a few considerations to bear in mind to keep your business out of a pricing pickle.
Examine what your competitors are doing in your market or the market you’re trying to enter. What are they charging for a similar product or service? What aren’t they doing that you could do in order to set you apart and make you stand out to potential customers? Investigate why you’re finding any differences in prices – perhaps your competitors are tacking on extras, warranties, service guarantees, etc. onto their sales.
But keep in mind that you shouldn’t try to compete with large store or business prices. When it comes to products, larger establishments buy in greater volume, so their cost per unit is less. The landscape is ever-evolving, so regularly keep tabs on your competitors.
You might think that the lowest price is the winning factor to keep and gain customers, but it’s not so straightforward! Many people patronize small businesses because of features they can’t find at larger businesses, so consider your differentiators. What are your strengths beyond providing your primary product or service? And what else is important or valuable to your customers that you can incorporate into the experience?
Offering personalized service, customizable options, top-notch customer service – elements like these enhance the quality of customers’ experience overall, leaving them with a positive feeling that they’re likely to return to experience and recommend to others.
Don’t forget what it costs you to make your product or service available – that is, the total cost. Often, small businesses overlook the bigger picture, which can include a number of overhead costs for your establishment. The Iowa Small Business Development Center offers a useful list to help you price your products and services, and mentions specifics worth keeping in mind:
- Material Costs: the cost of materials found in the final product (e.g., the wood and other materials used in manufacturing a chair)
- Labor Costs: the cost of the work that goes into manufacturing a product (e.g., the wages of all production line workers and should also include fringe benefits such as social security, insurance, retirement benefits, etc.)
- Overhead Costs: any cost not readily identifiable with a particular product (e.g., maintenance, supplies, insurance, clerical services, advertising, transportation, etc.)
Careful reflection on your costs, customers and competition will help you develop a pricing strategy to ensure your small business’ success. Interested in additional guidance? The experts at SCORE can help you gain the insight you need.