Article compliments of our partner Moore Stephens
Pricing a product is ‘probably the toughest thing there is to do.
Whether you sell a product or service, the price you will charge your customer will have a direct impact on how successful your business will be.
Don’t Set Arbitrary Prices
Arbitrary prices mean arbitrary results. It is important to take the time to evaluate all the factors that will impact your prices and that will help ensure you develop an effective pricing strategy.
Don’t Use Generically Adopted Pricing Formulae
The generally adopted formulae do not consider the hidden costs and other factors which could be unique to your business. Also, these formulae also do not consider what your customers/target market would be willing to pay for the goods and services.
Don’t Forget To Consider The Market Demand
If what you do is in high demand, then you should be aiming to maximise your profits by charging higher prices. The opposite is also true. If what you do is easily available, you should aim to price your goods and services reasonably to compete with your competitors.
Signs that demand for your product and service is high include a drastic increase in workflow resulting in support staff being
overloaded and not able to keep up with the workflow. Signs that demand for your product or service is low include finding yourself competing to win jobs, a shortage of work and fellow freelancers re-entering the workforce.
Do Factor In Both Direct And Indirect Costs
- Direct costs: The cost of goods and supplies and the cost of labour.
- Indirect costs: Labour costs relating to non-production staff members (administration costs), electricity, travel and transportation fees to get the goods to the premises (such as import
duties and freight costs).
Do Market Research
To determine if the market would be willing to pay your price for the goods and services it is important to do market research by finding out what the prices are for similar goods or services. This can be done by shopping around for prices of similar goods and services and investigating what your competitors are charging for their goods and services.
Things to consider when investigating your competitors product is what does he/she offer alongside the product. Does he/she provide personalised attention, a liberal return policy or free delivery? All these factors are part of the package consumers look at when making a purchase decision and thus are important in pricing strategies too.
Do Consider ‘Who Is Your Client’
Successful businesses use a combination of tools and know that the key factor to consider is always your customer first. Your price will often vary for different clients .This happens for a few reasons. Some clients require more effort, are riskier, are repeat clients and you have a relationship with them. You should vary your price to account for these sorts of factors.
The most critical strategic decision a company can make is how to price its products or services. But if done properly, it will add great value to the company in terms of profits. You owe it to yourself and to your business to be relentless in managing your product pricing. Remember, how you set the price of the products could be the difference between the success or failure of your business.