How do you go about setting the pricing for your products or services? Setting goods prices may seem easier because you have actual labor and manufacturing costs and the associated materials purchasing required to make the product. Those numbers are easier to see and calculate. Yet a first time entrepreneur can still make mistakes like Katie Danzinger, founder of Nomie Baby in Manhattan did when she began selling removable, washable infant car seat covers.
According to this article in the NY Times in the Small Business section titled Real-Life Lessons in the Delicate Art of Setting Prices, Ms. Danzinger thought she had all her bases covered but didn’t factor in enough for printing of marketing materials, shipping, storage, packaging or liability costs. But an increase of 6% in the selling price put her back on track.
The article points out how tricky setting prices can be in small business marketing. If your prices are too low you can get yourself into some hot water. For some reason, small business owners are always a little leery of raising prices even when you know that you’re losing money on every sale.
We have this notion that customers will run for the hills if prices rise. But is that really true? Or are you using some other value system to judge whether you are worthy of the prices you charge?
Traditional marketing will tell you to look at the competition and evaluate where you fall within the market, and set your prices accordingly. The in depth studies tell us that customers don’t always go for the lowest price. What they want is value. And value comes in many forms. Value includes the benefits your customers receive not just the features of your products or services.
Maybe it’s time to reevaluate your pricing. If you are selling products, ask yourself if your pricing is in line with your competitors. Is there room to increase price without shocking the market? Is there an opportunity to increase price by adding benefits that your competitors don’t offer? That is how you will increase value for your customer.
Same rules apply for service based professionals. When was the last time you checked to see what your competitors are charging for the same services? Do you know where your services fall in the pricing structure of your industry? If not, you need to do some investigating. You may find that raising your prices to the market standard will give you an automatic revenue increase without shocking your customers.
However, if your prices are already in line or greater than the competition, adding benefits applies to services too. Brainstorm how you can add benefits that your competitors don’t offer and then make a big deal out of the fact your clients can only get these benefits from you. Make it something irresistible and promote it ruthlessly.
How you determine your pricing is as much a matter of self-confidence as it is market driven.