Many small businesses struggle, not because their product or service is poor, but because they are not charging the right price.
Getting your pricing right is the key to building a profitable business. Charge too little and you will go out of business, because you cannot pay the bills. Charge too much and you will go out of business, because you won’t sell anything.
- If you concentrate on building a price based on your costs, plus a margin for profit, you run the risk of ignoring the market value for your product/ service.
- If you look only to the market and based your price on your competitors, then you run the risk of not covering your costs.
In practice, you need to have a very clear picture of your business costs (including a proper salary for you, the business owner). This means that when you look at the market price for your product/service, you know whether or not you will make a profit.
You need to really understand the value of what you supply to your customers. It is important, therefore, to talk to your customers regularly about their current and future needs. If you can increase your value you will find it less likely customers will go else where even if tempted by lower prices.
Pricing is as much an art as it is a science – by having key information to hand about; what your customers want, what your competitors are charging, and what your own business’ costs are, you will be able to paint the right pricing picture for your business success.