What to think about when setting your price print Print

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One of your key tasks as a business owner is to set the right price for your goods and services – not too high, not too low. This article takes you through what you should consider to set the best price for your business. And we share some top tips to help when you want to increase your prices.

The dangers of not having a sensible pricing strategy

Easy Pricing Strategy

An alarming number of businesses don't have a proper pricing strategy and you don’t want to be like them and rely on guesstimates. This often leads to the discovery that prices do not produce sufficient revenue to meet the real costs of the business, and has led to the failure of many businesses.

A pricing strategy will help you decide the best price for your product or service. When your prices are high enough to cover costs, give you a reasonable return, and are attractive to customers, you know you’re winning.

What you should consider when setting your price

To achieve a sensible pricing strategy, you need to understand what the competition is charging and what your customers would be willing to pay. You also need to know what your business objective is, whether it is to:

  • Maximise your profits. This means you’re aiming for as much profit as you can from a product or service, charging as much as you can. Prices that are significantly higher than the competition mean that you could risk having customers go somewhere else, but that could be ok if you still get enough customers to make a profit (and you are doing lesswork).
  • Increase or hold your market share. This choice means you might have to sacrifice some of your profits, and possibly charge less to certain customers.
  • Match or beat the competition’s prices. Pricing low can work, especially if you are aiming to grab new customers. But if you decide to compete head on with price, consider why. Is it just that you’re lacking confidence? If your competition includes larger businesses with deeper pockets, they’re always going to win the price war. You also don’t want customers perceiving your goods or services as lower quality than the competition. If you raise your price, up goes your profit margin.

Armed with the information, you’re in a much better position to establish the best price for your business.

For more help on pricing strategy, use our gross profit break-even calculator to help you establish the minimum income you need to obtain to remain in business.

What you need to know before you increase your prices

You should always be seeking to increase your prices over time, if only so that you can keep up with inflation. Increasing prices widens your margins and frees up cash you might need for business growth.

But what you don’t want to do is alienate your customers by increasing them too dramatically, so keep the following in mind when you’re considering a price hike:

  • Check your costs. Try to find ways to reduce your costs before you increase your prices. Reducing your energy use or changing providers, cutting down on travel expenses, removing poorly-performing products from your inventory or selling assets are all ways to do this.
  • Shine a light on your USP. It’s important to convince your customers that your products or services are worth the increase. Use your unique selling point – whether it’s great customer service, free delivery, or a superior product – to help show customers why your product is worth the extra money. Read more on this in our article, how to defend your pricing strategy.
  • Is there a market for higher prices? Confirm there’s enough demand for your product or service to justify a price hike. Schedule regular price reviews, and amend prices based on market expectations. Remain flexible with your pricing so you can update it on the fly if you have to.
  • What’s the competition doing? Consider your market position and what your competitors are charging. Think beyond competitive pricing and focus on your unique selling points, and how your pricing might complement these. Remember too, that your competitors aren’t just those businesses that are physically close to yours – the internet and ecommerce has shrunk the world considerably.
  • Provide the best customer experience you can. So make sure your staff are on the ball – perhaps even give them quick refresher – and remember to provide them with everything they need to do their job properly. Make an effort to know your best customers and deal with complaints quickly and efficiently.
  • Keep your customers in the loop. As well as giving great customer service, it may also sometimes be relevant to communicate to your customers the reasons why you’re increasing your price – especially if the price hike is significant. Open communication shows that you’re thinking about your customers and their expectations, and means your customers are more likely to understand and accept the change.
  • Stagger increases. Consider staggering the price increases of your different products over time, instead of raising them all at once.

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