Determining the price for your product or service can be a bit tricky and maximizing your profits can sometimes seem like an unsolvable magic trick. However, understanding key concepts for pricing can help your small business tremendously. In the SCORE Small Business Success Podcast “Pricing to Maximizing Profitability” SCORE mentor Mike O’Malley gives tips for small business owners when it comes to setting prices for your business.
The mentor says, “Pricing itself is a way that sets the message about your company.” Setting the right message for your company can pay off big dividends in the future. Below are four ways you can maximize your profits while building a solid business that sends the right message to your customers.
“There are more logical times to reducing and changing your prices,” says Mike. Learning when to change your prices can be a very powerful tool for your small business. During the seasons when customers are not buying your product is a great time to lower your prices. However, it would be a mistake to lower you price when your product is in high demand. It’s important to look at industry trends when determining to increase or lower your prices. Learning the industry trends by talking with your suppliers helps with setting prices for the appropriate seasons. It is not by chance that you generally see products in the same category on sale during the same time of the year.
Mike says, “Nothing replaces a good honest interchange of information that actually makes both sides better off.” Sharing information with people in your industry and asking questions makes for a healthy business environment. Ask questions like: “what are you currently selling?” and “what do your customers enjoy the most?”. While healthy competition is always good, reach out to people in your industry who are not necessarily close to you. Finding out how customers are responding to products, prices and trends in other areas can be just as valuable as finding out what’s going on in your community.
“Try to find something that can stand the test of having a higher perception of other goods,” says Mike. When it comes to selling a product, perception is everything. Find items that have a perceived higher value than its counterparts. Items that look more exciting, different and more challenging to make will hold a much higher value. The original price of a particular items doesn’t always reflect its perceive value. Understanding your customer and their expectations helps when solidifying your product prices as well.
“The service business is a referral business,” says Mike. Delivering high quality customer service can go a long way when determining your prices. When you tell a customer you will be there at a certain time or that you will have their favorite item in-stock for them on a certain day, it is your job to make sure you are on time and that the product is waiting for your customer. Your customers will remember your outstanding service and refer you to others. By doing so, you will be able to add a premium to your service because you can guarantee on-time and efficient customer service.
While pricing is important for you business, the mentor also says try not to make price the issue for your business, “make price the element, not the determining factor.”
Want to learn more pricing tips to maximize profitability for you small business? Listen to the full podcast of “Pricing to Maximizing Profitability.”
Interested in learning more pricing and sales strategies for you small business? Check out SCORE’s Pricing Strategy resources page!