Pricing is one of the most important determinants of your business’ profitability. Failure to get pricing correct can lead to your business collapsing or simply forgone revenue opportunities. When considering your pricing strategy, you need to take several things into consideration. For example:
• Price Increases – how will you justify them? It is always wise to increase your prices each year by inflation, as your expenses will have likely increased. There may be other appropriate reasons for changing a products pricing.
• Premium Pricing – In general a product that has higher pricing than most of its competitors will generally be perceived as a superior product. From a Christian perspective it is important that the quality justifies the higher price. It is not enough just to call something ‘premium’ and put the price up.
• Discounting – For this strategy to work, you need to reduce your costs not just your price or else increased sales are cancelled out by low profits. Discounting can be a dangerous strategy and can create a ‘race to the bottom’ amongst competitors. If used too often it can train your customers to ‘wait’ until the next sale, which will be terrible for your business.
• Extra Services/Materials – Discounting can work if it is used occasionally with your clients, but an alternative is to give extra services or materials at no added cost rather than lowering the price.
• Itemised Pricing – Many business owners would benefit from itemised pricing when providing their services. E.G. Let’s say you a great website developer and have produced some fabulous sites. More than likely an enormous amount of time went into creating those sites. A new customer comes along who loves your sites and wants you to build a site for them. You are unsure about their financial position, and to ensure you don’t lose the business you discount your quote to what you ‘think they will pay’ rather than the cost, the time, effort, skill and experience required. This is bad business. A simple solution to this is to provide itemised quotes to your clients that break down the project into its working parts. This has some key benefits:
- The customer will see just how much is actually involved and why it is not just a quick 1 hour job. Most clients rarely understand the industry that they are seeking services from and therefore underestimate what is involved.
- If they cannot afford it, they can choose the items in the quote that they want to proceed with. You can make some ‘essential’ and some as ‘nice-to-haves’. This way you get properly rewarded for your time and effort and lower the risk of losing business.
Proper pricing can involve the confidence and willingness to lose some business that is not profitable. Whilst no businessperson wants to lose an opportunity, doing business that is not profitable for an extended period will send you broke.
When forming your price strategy, also consider legitimate price differences:
• Volume Discounts – It can be sensible and appropriate to provide customers that buy regularly with a small discount.
• Cash Discounts – customers that pay promptly rather than taking advantage of extended credit terms can be rewarded.
• Group Discounts (students/seniors) – It is appropriate to provide discounts to particular groups who are deemed to be low income and generally receive Government support.
When dealing with pricing, it is important to abide by any laws within your country.