When starting your own work-at-home or other small business, it’s always a challenge to know what to charge for your products and services, that is if you are doing things correctly. The biggest mistake many small business owners make―especially those who are relatively new to entrepreneurship―is that they set a price for their products or services based solely on what the competition is charging. As is true of most things, it’s rarely that simple.
While knowing what price your competitors have set on what they’re selling is an important part of deciding what your products and services are worth, it should be just one of the things you take into consideration. In fact, there are any number of other issues you need to think about when setting the amount you will charge on just about anything. Furthermore, the marketplace is always changing, so you need to be armed with some strategic pricing options that can help you up your game if need be.
So here it is, some food for thought when it comes to small-business pricing:
• Product choice is oftentimes as much about the promise as it is the price. If you can demonstrate that your product comes with a greater likelihood that it is of higher quality, offers superior performance, or that pluses like generous payment terms, packaging, enhanced delivery service or ongoing customer support are included, you may be able to set a higher price than your competitor. Never assume that what you’re selling is exactly like that of your competition until you’ve done your homework and are clear on what differentiates you.
If it’s a service you are providing, then your years of experience, the quality of your finished product, how quickly you work and your ability to meet or exceed deadlines may justify a higher price tag.
• When it comes to product pricing, it’s not just the cost of the goods that matters. What about shipping and handling expenses? How about the cost to run your business, including overhead, payroll, marketing and office supplies? All of those things need to be taken into account when setting a price for any product you are selling, and your bottom line on one or more of those things may be very different than that of your competition.
As for how to set a price for the services you provide, it’s always a lot easier to overprice yourself just a little bit and then offer discounts to your clients than it is to low-ball yourself from day one. Remember, once you train a customer that they can get what you’re offering for less, it’s awfully hard to increase your rates. If you want to attract new customers and you’re just starting out, find out what your competition is charging and then price yourself at 10% to a maximum of 20% less. You can always offer a one-time new-customer discount if you need to sweeten the deal.
• It is okay to price your products or services a little bit below the competition if you think it will draw in customers who may then also buy other products or services that yield you a greater profit. Sometimes this approach is worth the calculated risk, but you have to think through it carefully.
Pricing anything a bit above the going rate requires you to create the perception that the extras you provide make the cost of your goods and services worth the cost, which requires a very well-conceived marketing communications strategy.
• Sometimes pricing can be a matter of simple psychology. Odd pricing, or using figures that end in a 5, 7 or 9, conveys the sense that what you are selling, if comparable on other levels, is a better deal―even if it’s only by a few cents.
• To one-up the competition, you might consider engaging in some form of multiple pricing, which involves selling more than one product for one low price. This approach has resulted in customers purchasing larger amounts time and again and can be implemented as a matter of course or on an as-needed basis.
• And lastly, discount strategies such as coupons, rebates, seasonal offers and promotional markdowns are just some of the other tricks you can pull out of your hat when and if you need them.