Pricing your products and services is a critical part of growing your business. It’s one of the most important decisions you’ll make and also a daunting task to do because you need to consider a pricing structure that is fair, yet profitable enough to support your business.
To help you determine the right price for your products and services, we’ve put together the fundamentals you need to consider on choosing pricing for your business.
Before you get started, it’s important to note that there isn’t one right way to price your product or service. Each business is unique and has its own needs and goals when it comes to pricing. However, there are some best practices that will help you come up with an effective strategy for your business.
Start with what you need
You want to know how much money you need in order to run your business. This includes paying yourself (and any other owners), paying rent or mortgage payments, buying equipment, paying for supplies, etc.
Set a target profit margin
Your target profit margin is the amount of money that you want to make from each sale after factoring in all costs related to running your business. For example, if you need $5,000 per month just to break even but only want a 30% profit margin then your target selling price would be $10,500 (30% x $5).
The first step in any pricing strategy is understanding who you are as a company and what makes your offering unique compared with others in your industry. This will help you identify which aspects of your offering should be emphasized in the pricing structure itself ( such as quality ) as well as which ones should be reflected by higher or lower prices ( such as service levels ). In addition, knowing thyself also helps when it comes time to negotiate with customers who may request discounts due to their buying power or their factors that aren’t directly related.
You don’t need to be a math whiz to price your products and services. In fact, you just need to know what your competitors are charging for similar items or services. And if you have to do some research on that front.
If you want to compare the prices of other companies in your industry, start by looking at the websites of their competitors and comparing them side-by-side. To find out which websites are most likely to provide useful information, Google search terms like “[brand name] competitors analysis” or “[brand name] product comparison”.
Do an internal audit
Once you’ve identified a few potential competitors, it’s time to conduct an internal audit of your own business practices and policies. If you aren’t sure how much money is coming in via each channel (say, if you sell through multiple channels), come up with a way to track that information so that you can compare it later on when determining pricing strategies. Once you have this kind of data in hand, it will be easier for you to make decisions about pricing based on real numbers rather than guesswork or assumptions about what customers might be willing to give.