Pricing strategy is a major consideration when launching operations, and it’s also an ongoing challenge for small-business management. Numerous factors are at play when setting a price for a new offering or adjusting prices for existing lines of business. To meet pricing challenges, focus on three key areas.
1. Efficiency: Business success is dependent on more than simply selling superior products or services. You must provide something that represents the best value. This means delivering what you offer in the best possible and least costly ways. It means taking steps to make prices fair to both you and the customer. The first step is to make a careful assessment of internal business processes. Could you improve the efficiency of your procedures? Be sure to look at general business functions that don’t directly affect customers. Having cost-effective organizational methods ensures a focus on output quality and customer service.
2. Costs: Fixed and variable costs directly affect pricing. Identify these costs and consider the costs incurred for each sale or service. Manufacturers must look at the cost for producing a number of units. Service businesses must consider labor expenses for the time needed to complete a project. Derived from these calculations is a price per unit/service that covers both production costs and overhead expenses.
3. Competition: What are others charging for similar products and services? Comparing your determined price to the prices charged by competitors is essential. If you decide that you offer something extra or distinctive, keep in mind that customers must perceive your added value to justify a higher price than your competition.