Do you want to be more successful? Do you want to make more money? If so, then improving your business pricing strategy is the first step. Unfortunately, many business owners don’t think about their pricing strategy until they are ready to scale up. This can lead to trouble because it becomes much harder for them to change how they price things once they have established themselves in a particular market.
Understand the Product and Industry Expectations
Before you can price your product, it’s vital to have a good understanding of what the industry expects. This will allow you to expand on or improve upon your current pricing standards. Unfortunately, price is often an afterthought in new products. So many entrepreneurs are just so excited to launch the product that they put pricing on the back burner until it’s time for customers to start paying.
This can be a huge mistake, as there are some essential things you need to understand before figuring out how much your product is worth and how much to charge.
Consider Your Material Inputs and Overhead Costs
The product’s price is not simply what you sell it for but should also take into account the input from raw materials and overhead costs. You need to think about all those factors when determining and setting your prices.
Pricing products too low can lead to not covering the cost of making them, which leads to losing money and cutting corners to be profitable.
Pricing your product at a lower price is tricky because you have less room for discounts later on.
Research and Consider Different Pricing Models
Pricing models are the different strategies for how you charge your customers. Therefore, it is essential to understand the different pricing models to know which one would be best suited for your business model and goals.
The five most common pricing strategies are: fixed, variable, tiered, penetration and psychological pricing.
- Fixed price strategy – This strategy sets a single price at which you offer a product or service for a certain period.
- Variable pricing strategy – In this model, each customer pays a different price depending on their circumstances. This can include seasonality, time of day, location or the size of the order.
- Tiered pricing strategy – In this model, you offer two products with different price points.
- Penetration pricing strategy – This model involves setting a low initial price to attract new customers and quickly build market share. Then, after a time, the price of your product or service will increase to make more profit and account for any lost sales.
- Psychological pricing strategy – This model involves using numbers proven to influence people’s behaviour to encourage them to make purchases.
Consult and Engage Professionals in Your Process
One of the most critical steps to improving your pricing strategy is consulting and implementing advice from professionals in the process. These professionals can come from a variety of backgrounds, but it’s best if they have some kind of expertise in this area.
No matter who you work with, it’s essential to know that they understand the needs of your business when creating a new product line so you get better results.
Countercheck and Project Your Final Pricing in Comparison to the Market Price
Your final price should be a little higher than market prices so you can maintain your margins and profitability. At this point, you should not forget to check the competition for similar products and other alternatives such as alternative pricing models like subscription boxes or pay-as-you-go services.
This guide should give you the tools to get started on your path towards becoming a pricing master. With this knowledge, there’s no reason why you can’t continue this journey and become a true expert in the field of product development. At Total Eclipse, our agency employs the top business and finance professionals with decades of combined experience in product development and best pricing practices. Contact us today for more information.
Kylea Martin is a Financial Strategist who boasts numbers among her many superpowers.
She can decode your business data and transform it into information you can readily understand.
A Certified Practising Accountant, Kylea leads the Financial Services team, bringing over 25 years of corporate experience to small and medium business owners.