SCORE Small Business Blog

The Price is Right—or is it?
5 Comments

Pricing your product or service correctly is one of the biggest challenges startup business owners face. But the conundrum of pricing doesn’t end after you launch your business. As your business grows, how you adjust your prices can make or break your business. What are some factors you need to consider when setting prices for your products or services?

Start by determining the cost of manufacturing or buying what you sell, or providing the service you offer. This can include things like labor, equipment and materials. You also need to consider your ongoing overhead costs, such as the cost of renting your store or office, utilities, payroll and the like. You need to make enough to cover all these costs and still make a profit.

In addition to running these numbers, you need to consider a few other factors when setting prices:

Your competition. Keep up-to-date on the prices your competition is charging for similar products and services. As you survey the market, you’ll likely see a huge range in prices for the same things. Figure out why certain companies are able to charge more and why others charge less. Maybe the higher-priced competitors offer top-notch service, exclusive products people can’t get anywhere else or lots of extras. The lower-priced companies are probably bigger with economies of scale in their favor.

Your sales channels. The methods you use to sell your product or service (retail, ecommerce, sales reps) will affect your pricing. If you sell camping gear directly to customers via a website, for instance, you can likely charge less than if you wholesale your product to retailers who have to mark up the price so they can profit. If you sell business services on a website where customers pick their own package and subscribe, your costs are much lower than if you have a team of salespeople who personally consult with each prospective customer.

Your customers. It all comes down to what your customers are willing to pay for your products or services. If you aren’t selling enough, that could be a sign that you either need to lower your prices or change your sales and marketing strategies. Be careful not to cut your prices so low that you’re not making a profit—if you do, all those customers you’re attracting could hurt your business more than they help it.

As you might have guessed by now, there’s no simple formula for pricing your product or service—it’s both a science and an art. If you need someone with more experience to help, the mentors at SCORE have the expertise you need. Visit the SCORE website to get matched with a mentor and get free business advice 24/7.

Rieva LesonskyCEO, GrowBiz Media
Rieva is CEO of GrowBiz Media, a content and consulting company specializing in covering small businesses and entrepreneurship. She was formerly Editorial Director of Entrepreneur Magazine and has written several books about small business and entrepreneurship.
www.growbizmedia.com | @rieva | More from Rieva

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Discussion (5) Comment


  1. Dina Eisenberg | SpeakupPowerfully.comVisitor

    I agree pricing is hard especially for self employed folks. While its important for coaches or freelancers to look at competitor pricing too often someone will take the average as their price or charge slight higher or lower to take the easy solution.

    A better solution is to use the multitude of online help to do informal market research. Tools like SurveyMonkey, Answergarden, quora are terrific for opening discussion with your market. Then you can discover their problems & build a custom solution that makes price a non- issue.

    Also it helps tremendously to improve your emotional intelligence when talking pricing. Your client gets better service and you avoid tripping your psychological immune system, which can prevent you from getting paid what you’re worth.

    Clearly I’m passionate about small biz owners prospering. Thanks for letting me join the conversation.

    Be heard & prosper!


  2. OsirisVisitor

    Question: How do you calculate the cost of your time?

  3. Thank you Rieva, great article!
    Shane

 

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