Pricing is always a tricky area to get correct. It’s one of those things that remains on a seemingly ever expanding list! I think this is because business owners don’t know where to start.
It’s important to increase your prices even though many costs have gone up. I’m not saying you need to double them but it’s best to at least cover inflationary increases. I know it is one of the most difficult things to do in business, not least because you have to communicate those price increases to your customers and clients. Also, the process makes you take a long hard look at the value of your product, and if you are delivering a service, you are putting a price on yourself – never an easy thing to do!
The positive point about increasing your prices is that you have to take an in depth look at your business first – which is always useful!
In this blog, I will give you 7 questions to ask yourself before you set your pricing strategy.
Why do you need to price correctly?
There are two main reasons you should pay attention to your pricing strategy:
To cover all of your costs
To achieve the profit margins you want
How to adopt a Pricing mindset
Pricing is one of those areas that can push our buttons. Is it OK to increase my prices? Am I worth it? Everyone is having to face increased living costs, so should I be adding to their burden by increasing my prices?
Remember it’s important to price in a way you feel comfortable but also don’t shoot yourself in the foot! Your prices need to reflect the amount of time and expertise the customer is receiving from your product or service. Your product or service is of use to them. When buying a product or service, your customer wants to receive good quality and value. If you provide good quality then charge for it!
What I suggest is that you give yourself some time and be honest with yourself. Are you pricing at a high enough level? Are you making the profits that you want? Does your pricing strategy correctly reflect the costs and time you put in?
Getting the price wrong will make a significant difference to your turnover and profit. I look at this more fully in my book, Your Business Your Numbers.
Importance of compounding
Compounding means that your earnings are reinvested back into your original investment to continue earning for you. For example, if you invested £50 per month for 10 years with 8% per annum interest you would end up with £9,150. Rather than £50 per month for 10 years not invested – this would only give you £6,000!
When you consider your pricing strategy, you need to give some thought to your targets.
What is the purpose of your pricing? What do you hope to accomplish?
These are the main pricing goals:
To maximise profit: to improve current profits, as opposed to long-term profits.
To maximise revenue: to maximise current revenue without consideration for profit margins, and the intention is usually to maximise long-term profits.
To maximise quantity: to sell as many units as possible or serve as many people as possible in order to decrease long-term costs.
Preparation Is Key to Pricing!
There are 7 questions you should ask yourself to help you decide on your pricing strategy. As I said before, be honest and take your time in responding.
Do you understand the market well enough?
Do you understand your product or service well enough, including all associated costs?
· Office rent
· Loan interest
· Credit card/PayPal fees
· Delivery costs
Don’t forget the costs of your time if you provide a service. Do you price enough to justify the time you put in to delivering the service?
3.Are you dealing with a basic or a premium product?
4.Do you understand your ideal customer well enough? Who do you want to attract?
5.Who are your competitors, and have you checked your competitors’ pricing?
6.Can you distinguish yourself from the competition?
7.What is the image you want to display?
Once you have answered these questions, draw up a plan of action if you need to do a bit more research into certain areas, such as your competitors or your ideal customer. Then you will be well on your way to creating your pricing strategy and making sure that it reflects what you and your products are worth.
In the current climate, there may be a temptation to reduce prices to attract customers. If you’re going to go down this route, remember it’s a fine balance to get this right; it could come over as a sign of desperation! It may not be about reducing your prices but about adding value.
What could you do in your business to add value to your customers? Could you add something to a service or order that costs you very little (or nothing) and yet has real value to your customer? Can you make certain promises in terms of timescale or quality of service/product?
I recently attended Dawn Owen’s High Vibe day and aswell has receiving great content and a lovely lunch she also gave us a goodie bag. This bag was thoughtfully put together and very useful. A nice touch!
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Take a close look at your pricing and consider whether your current strategy is right for you and your business. You may be surprised!