Updated: August 31, 2020
In business, setting the right prices for your products and services is essential to its growth.
Unfortunately, many entrepreneurs, especially those running small to medium scale enterprises, commit the mistake of charging prices solely based on competitors.
They fail, or simply choose not to, consider the actual costs of production, operation expenses, and a good profit margin to their equation.
To help you with your business pricing strategies, here are some pointers you should remember.
Having the right price
To determine how much you should charge for your products, you should consider not just the prices of competitors, but also, how much it’s costing you to produce and operate the business.
Furthermore, an acceptable profit margin must be added to ensure that the business remains worthwhile for you to run. After all, nobody wants to just break even.
Unfortunately, there is no simple formula to come up with the best prices. I have before, written a straightforward pricing technique which I believe is always a good starting point.
My personal advice is to compute your prices solely based on production, operation, and profit first – be thorough and meticulous. After that, fine-tune your figures by taking into account the prices of competitors and the purchasing power of your target market.
Setting prices higher than your competitors
For consumers, the price of a product or service is just one of the many factors they consider when purchasing. More often than not, they also give weight to product quality and customer service.
If your price calculations result in a higher figure than what others are offering – then invest in informing your market why you’re the better choice in terms of quality and service.
For example, based on my food costing template, an order of scrambled eggs in my restaurant business would cost P10.50.
If the adjacent “carinderia” is selling the same for just P9.00, instead of just copying the price, I’d try to provide a better dining experience to my customers first.
I could likewise inform them that only the freshest eggs are used for the recipe. This will hopefully convince them that the extra P1.50 on the price is worth it.
Remember that initiating a price war should be your last option. Take the battle first on quality and service.
When quality and service is not enough
Still not selling well? Then prepare yourself to adjust prices. But be forewarned that once you take this route, it’s hard to turn back.
As a “second to the last option”, I suggest you try a different marketing approach first, target another demographic perhaps?
You can also change your business model, or work on improving your product quality and customer service to make it more appealing to costumers.
It’s all about value
At the end of the day, everything boils down to value – not the monetary value, but the emotional value that you provide your costumers that really matters.
While it is important to cover your costs and produce a good profit, it is more essential to make your costumers feel happy and satisfied with their purchase. When they feel that it’s worth it, then they’ll certainly come back for more.
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