How to Approach Pricing in Your Business
Pricing is often a very fluid component of business. Many outside factors, most recently inflation, can impact your business and the prices you charge for the services and products you offer.
Adjusting prices is a common part of doing business, especially as your business grows. If your prices do not increase, at least as much as inflation and other factors, your company’s financial health may be impacted.
That’s why it is essential to know how to approach pricing within your company.
When and how do you make adjustments?
Look Into Your Product
You cannot be profitable if you sell a product or service that costs you more to produce than what you get in return. That is why your first step is to focus on the product itself.
How much does it cost to produce? Consider your cost to purchase raw materials or the finished product. Then you need to factor in other costs, too, such as the cost of employing people to sell your product.
Once you know how much your product or service costs to produce, you can then work to improve its value.
If you plan to increase the price, is there anything you can add or change to make your product more attractive to consumers? Even a small improvement can make it easier for you to justify the rise in price.
It’s also important to consider steps you could take to help reduce your cost for that product. Is there a way to get it to your customer for less money? This is another small, yet profitable change.
Check Out Your Competitors
The next important step is to determine what your customers are charging. Run a competitive analysis to see how the competitors are pricing their products and services. You should use their prices as a way to judge where your price point is right now.
- Are you already charging much more?
- Are you charging less?
- Are the products or services equal?
All of this can give you guidance for choosing your price points.
Hear What Your Audience Has to Say
Along with a competitor analysis, you should also run a market analysis. It will show you how the market will react to your products and prices.
This will give you insight into what may happen if you increase your prices and how much of an increase may be within the limits your customers see as acceptable.
You should also look at your target customers (customers who aren’t currently buying your product but could benefit from it) and what they are likely to spend.
Ask them questions like:
- How much do your customers have to spend?
- How much disposable income do they have?
- How much are they willing to pay for the service you are offering to them?
Conducting a market analysis like this can give you more insight into what your customers truly expect from your business.
Select Your Goals and a Pricing Strategy to Match
Price plays a huge role in reaching your business goals, especially the goals relating to money. Make sure the pricing strategy you use helps you reach those goals.
Here are four strategies to consider:
- Customer-Based Pricing: In this pricing strategy, you’ll price products based on the benefit it offers to the consumer. Meaning the price is based on what the customer is willing to pay.
- Competitor-Based Pricing: In this form of pricing, the focus is on the existing market rate for the products. Your competitors’ prices are the benchmark. This method is best for those in a highly saturated marketplace.
- Cost-Based Pricing: In this pricing strategy, the prices are based solely on the cost of producing the product or service. The business then marks up that price by the amount of profit they want to make, often at a fixed price. This is often used by retailers selling physical products.
- Value-Based Pricing: In this pricing strategy, the company relies on the customers’ received value of goods.
Turn to Experts for Guidance
Pricing matters and should be done with a careful eye. To get it just right, be sure to turn to an expert that can help you pick the best strategy and set the right goals for your business.
At U-nique Accounting, we will help you accurately price your products and/or services so your business can see success. Contact us today to learn more!