A number of businesses don’t have a proper pricing strategy - so it’s not surprising that they often struggle to set their prices. Even worse, without a pricing strategy your prices may not produce enough revenue to meet the costs of your business.
It’s essential to do your due diligence when setting your pricing. That means being clear about how much profit you want to make, your costs, what your competition is charging and what your customers would be willing to pay for your product and service. Our Break-even calculator can help you establish the minimum income you need to stay in business.
You also need to know what your business objective is. For example, is it to:
- Maximise your profits by charging as much as you can. Remember by charging significantly higher than the competition you could risk having customers go elsewhere, but that could be ok if you still get enough customers to make a profit (and you are doing less work).
- Increase or hold your market share. This choice means you might have to sacrifice some of your profits, and possibly charge less to certain customers.
- Match or beat the competition’s prices. Pricing low can work, especially if you are aiming to grab new customers. But be careful about competing solely on price – especially if your competitors are larger businesses with deeper pockets. You also don’t want customers thinking that because you’re cheaper, your goods or services are lower quality than the competition.
Take your time, do some research (don’t guess) review your strategy regularly and be prepared to make changes if necessary. When your prices are high enough to cover costs, give you a reasonable return, and are attractive to customers, you’ll know your pricing strategy is working.