Whether you’re selling homemade cookies, clothing, or a service like nutritional coaching, being priced correctly is important to potential customers and your business. Pricing should be determined before launching your products or services to the public, but it can also be tweaked as your company grows. However, it’s only fair to let your customers know well in advance when you decide to increase prices.
When considering product pricing and business pricing, you can’t just select a random number that sounds fair — this could seriously harm your business’s bottom line in the future. Instead, you’ve got to find the sweet spot, which can be done through several different pricing strategies. Remember that the price you select doesn’t always need to be what you charge. Since you control every aspect of the business, you can run sales, offer bundles, and give customers incentives whenever you think appropriate.
To ensure your business isn’t losing money and will be profitable, take a look at these elements that can help you create an effective pricing strategy:
Market research
Conducting market research is a great place to start when working towards price optimization for your business. This means pegging down your target demographic and researching what products or services are in high demand and the prices that they are selling at.
After completing some market research, you can decide whether or not you want to offer products or services that appeal to a large portion of the market or if you’d like to narrow your offerings down to be more niche. Market research can be done through surveys that collect customer data, interviews, observations, and even focus groups.
Evaluate your competitors
The competitive pricing strategy involves strategically selecting price points for your products and services based on competitor pricing.
A surefire way to ensure your business is moving in the right direction is by taking a long, hard look at your top competitors. Find a handful of similar local businesses targeting the same demographic as you and check out their price strategy.
For example, if you are selling online fitness courses for $200 and your nearby competitors are all selling them for $150, most customers are going to gravitate toward the cheaper option. So it’s your job to find out why your competitors have lower prices, and then you can consider tweaking your pricing model.
Also, it’s a wise idea to look into their marketing tactics and the services and products they are offering, this way, you can model your business after whatever you feel is working for theirs.
Consider supply and demand
If you’ve got a hot product that’s insanely in demand, like the Chestnut Ultra Mini Uggs, right before the fall season rolls in, then you can definitely charge a more competitive, higher price. However, if your products aren’t in high demand, you’ll have to adjust your prices to reflect this.
Analyze your costs
Failing to analyze your business costs before deciding on prices can be very detrimental and will likely send you spiraling. Business costs include labor, materials, transportation, and anything else you spend money on for your company to operate. Once you’ve added up all the costs, you can think about how much of a profit margin you seek. The key to this is making sure you’re bringing in more money than your business is spending. That way, the number in your business’ bank account will keep going up!
Get feedback from customers
While this is similar to market research, this tactic involves speaking to customers directly, not just people who fall within your target demographic. Chatting to customers who have previously purchased your product or service lets you glean helpful information that can move your business in the right direction. Ask them via survey or in person how they feel about the value of your offerings and if they are satisfied with their purchase. This is called value-based pricing.
