Let’s start with the bad news. There is no magic formula for a perfect pricing strategy: your business is unique and your pricing strategy should be the same.
And now the good news. You can avoid typical mistakes. Read on and you will learn how to choose a strategy that suits you, your clients, your business.
Pricing strategy: how to make the right choice
Price choice plays a crucial role in the prosperity of both small businesses and large corporations, both freelancers and startup owners. You can produce the perfect product, provide impeccable service, but if your price is too low, you will go bankrupt, and if too high, you will lose customers.
Finding your ideal price is not easy. What is the cost of the product? How much are customers willing to pay? What price have your competitors set? Your sales can be influenced by many factors beyond your control. But don’t despair. Pricing strategy is not chosen randomly, and by following certain rules, you will definitely succeed.
Pricing strategy: rules to avoid typical errors
Do not seek to set the lowest price
The lower the price, the better the product or service is sold, right? Not at all. A low price strategy can be a good choice for very large enterprises, but is unlikely to suit you. You can, of course, set a lower price on your products/services than your competitors, but will you earn a living in this way?
A lower price may provide an increase in sales. But will sales reach a level at which your profits will be high enough? Successfully applying a low price strategy requires a significant amount of money to invest and a very large customer base. If you don’t, a low price strategy is likely to only hurt your reputation. In the worst case, it will lead you to bankruptcy very quickly.
Costs can be direct – these are obvious costs that you incur: for example, the cost of materials needed to create your product. Determining the amount of direct costs is not that difficult.
Let’s say you have paid $500 a month to make your product. You paid $500 for a certain piece of furniture and $10 for a certain piece of furniture. You have to pay $500 for the paint you use to repaint the item. Your cost is $510. That’s $510, right? Of course not.
We did not take into account the cost of transporting the piece of furniture, the cost of repainting tools, workshop rent, the cost of insurance you need, marketing costs and, most importantly, the time you spend on repainting.
Add to that the cost of mobile phone and Internet connectivity; the hardware and software you need to do business… So we’re getting closer to the real sum of your costs. Is everything too complicated? Don’t worry: sophisticated tools and applications will help you calculate your costs in no time. And you’ll know exactly how much your product really costs.
Don’t underestimate the value of your time
Did you know that time is one of the most important factors in pricing? To earn a living, most people sell their time. We get compensation for the number of hours worked. Many freelancers and businesses use hourly wages; annual, daily or hourly wages are determined for employees.
Even if you are a strong supporter of targeted and product-oriented pricing methods, even if you are not billing customers for actual time worked, consider your time and the time of your team when calculating costs. It’s not difficult with a well thought out time tracker.
Adhere to the chosen pricing strategy
Once you calculate your costs, you can move on to defining your pricing strategy. Do you want to set a low price and create an image of an affordable service/goods provider? Or do you prefer to sell expensive services/goods with a high quality focus?
Your price is one of the most important elements of your corporate identity. Consciously approach the choice of your pricing strategy. Once you have chosen a strategy, stick to it.
Don’t confuse your customers with unexpected price reductions, because perhaps the only thing they really care about is quality and flawlessness. Believe me, if the quality of your services/goods is consistently high, you will notice that people are willing to pay more than you think.
How to choose the ideal pricing strategy?
Choosing the ideal pricing strategy is no easy task. Look at your business data. Estimate your costs. Find out the prices of your competitors. Trust your intuition. Take a risk. Pray. Do whatever you think can help. As a matter of fact, never underestimate the value of your time. Your time is priceless.