Pricing advice for small business owners

Hitting the nail on the head when it comes to pricing the products and/or services your business offers is particularly crucial when it comes to start-up ventures. Although pricing might seem like just another item on your ever-extending to-do list, it’s actually a pretty big deal and needs to be relocated to the top of your priority list.

Keeping your audience happy and attracting more custom is the aim of the game here and the pricing of your products and services play an instrumental role. Pitch your prices too high and you will have them recoiling in horror and running into to the comforting bosom of more affordable competitors. Set prices too low and you won’t be able to reach your full profit potential and risk projecting yourself as inferior to likeminded brands offering similar goods.

So, you can see how tricky but important it is to make sure you’re bang on the money. Fantastic goods and an awesome marketing plan are fruitless if your prices aren’t on point so sit back and enjoy our expert advice on getting it right.

It’s all in the branding

Pricing isn’t just about economics and financial matters either, believe it or not. Customers are weird creatures and staying on top of their ever-changing consumption habits is no mean feat. You may think business success is as simple as offering a lower price for the same high quality service but it’s actually often far more complicated than that. Modern day consumers are now more in tune with the implications behind numerical values attributed to the products they’re investing in and these connotations are influencing their decisions. Shoppers buy into reputation as much as they buy into product quality and service.

The price tag attached to your product carries substantial weight in establishing and reflecting vital brand identity. Underselling yourself will throw shade over the business in the light of successful competitors and have you targeted the wrong demographic. Overselling your goods could have you reaching out to just a small, niche group of consumers who actually have the capital to splash out on overpriced produce.

You need to know your brand inside out before you can begin to generate the price points that will reflect this is the bustling marketplace. If you are selling luxury cosmetic items for example, you don’t want to pitch prices that attract consumers who prefer bargain retailers. Doing this means you will fail to achieve sufficient profit and struggle to entice the more affluent audience your brand caters to.

Know your costs!

Business is all about finding the balance between cost and revenue. After starting up your micro-enterprise, the first big hurdle you’re going to face is reaching the break-even point where your revenue exceeds these costs. In order to do this, you’ll need to strike the appropriate price points but in order to strike the appropriate price points, you will first need to do some serious research into your various costs.

Variable costs cover changeable expenses like electricity and materials, while fixed costs refer to constant outgoings like business rates, rent and wages. You will need to calculate these values for your own business and then add on any research & development costs and the final figure will give you a rough guideline of what your break-even figure is. This is the number you will need to work towards achieving and you will need to pitch your price points accordingly. Don’t forget to also consider factors like VAT at this point.

Pricing methods such as cost-plus pricing and value-based pricing can then be used to do the math needed to establish how much you will have to charge customers in order to get sufficient return. Cost-plus pricing involves adding a mark-up amount onto the price, which is calculated as a percentage of the total cost amount. This can be altered in alignment with customer demand and market behaviour and enables you to cover costs and make profit on each individual item.

Value-based pricing requires you to establish the worth customers attach to your product or how much they are willing to pay for your service. A tried and tested trick of the trade is to set these costs using odd values to make the customer feel like they are getting a sweeter deal. It has been tried, tested and proved over and over again that shoppers are more likely to be attracted to something that costs £19.99 than something with a £20 price tag.

Know your market inside out

The ability to use value-based pricing as basis for laying down your initial price points will only be allowed if you put the preliminary research in beforehand. As with most aspects of starting up and successfully running a business, be it big or small, market research is absolutely paramount and the key to cracking customer and competitor behaviour. Without analysing the demands of your demographic and the techniques of your competition, the process of pricing will just be a risky stab in the dark.

Gaining some much-needed insight into how much customers are already paying for the services or products you offer will enable you to more easily find your place in the market. Seeing what competitors are offering and at what costs will then allow you to offer a more affordable service and potentially undercut their prices where you can afford to. This may seem pretty cutthroat but they do share your target audience and hey, business is business.

When starting up your brand new business venture, experts always advise aiming a little high when establishing your initial price points. Customers are far more likely to accept a reduction in prices further down the line than an inflation, so setting the bar high from the off will help you avoid any sticky situations and loss of consumer loyalty. However, if you do have to ramp up prices at any stage, our blog post on keeping customers happy when it comes to price inflation might be able to help you out.