One of the Items I review as part of my Business Strategy Program, is Pricing. Depending on your business, it can mean a quick review or an in-depth process to get it right.
Here are some of the important considerations to consider when you look at your product or service pricing :
• Your Gross Profit
What does it cost you to supply the product. Obviously you have to sell the product for more than you purchased it for, and any associated transport costs. This is the money you make before you spend on anything else. You need to make sure you have considered all your direct costs before you think about pricing. For a service industry you want to consider the direct costs to provide the service, such as software, printing costs, subscriptions – anything you need to actually provide the service (again, not your overheads)
• Your Overheads
You have then consider the costs involved with running your business. Your salary, your petrol, anything else you need to spend on before you can make a profit.
• Your business Vision
What is your Business Vision? If it’s to be the cheapest and you will beat any quote, then you will always be considering what’s going on around you. If you’re goal is a very high end product or service, then you will be able to back the higher price up with that quality guarantee.
• Your Industry
You have to consider your industry norm. What are your competitors doing what are they offering and how is it packaged (take a look at my blog about competition in business Blog – Competition). If you’re competitors are packaging their products or services in a more understandable way, or apparently cheaper, you have to be aware and review if this is possible for you to consider. If all your competitors are pricing better than you, then consider the reasons for your higher price (quality or experience). Don’t jump on every attempt to drop you’re price if they drop theirs – backup your price and the reasons for why it’s more. Unless your business vision is to be the most affordable.
• Don’t price too low
Being too low below your industry norm, will have the affect of forcing the industry pricing down. And this is not a good thing. Coming in at half the norm, may be sustainable in the very short term, and will get you a few customers that look only at pricing, but it may not be sustainable.
• Think worst and best case scenario
If you are billing per hours, think of the maximum hours you can work in a month and make sure that it’s possible, at that rate, to achieve what you need to earn in a month. If not, you will need to go higher. Think of the maximum you could earn and make sure is enough to keep you in business. And at what limit will you need more help, and draw up a mock-costing. If you’re selling a product, see how many you need to sell to break-even, how many you would like to sell, and the outcome if you sold at maximum. If something doesn’t look right there, start again. Imagine a restaurant that’s booked our every weekend, but not turning a profit. Make sure you understand your sales volumes.
• Know you’re worth
It’s tempting to start low to get new clients, but if you’re worth more, stick to it. There is a perception of cheap not being quality. Don’t price yourself below you’re worth. It’s not satisfying and not sustainable.
• Package it well
Nothing is more off-putting that a difficult to understand package or price. Especially in a service industry you may have a lot of different criteria and additional services and ad-hoc hours. If your customer can’t understand your pricing, they will move on to one that is easier to understand.
• Keep at it
Don’t do this exercise once. Markets change, prices change, industries change. You need to get systems in place to be able to review your pricing regularly so that you can amend and update sooner, if necessary, than later.