Price ain’t nuthin’ but a number – Part 1
That’s not entirely true, the price of your product or service is important in the grand scheme of things and can be tricky to get right. I’ve been through a considerable trial and error process with my pricing and numerous different strategies, and I’m still not 100% sure if I’ve nailed it, but I have learned a few bits along the way.
Before we begin, I will say that pricing is hard for people who see monetary transactions in general as difficult — especially if your business is based on something close to your heart and you don’t want to be viewed as someone who’s just in it “for the money”.
The thing is, we’re all in business here, and business by its very nature is “for the money” — so it’s important to separate yourself emotionally and look at your pricing model objectively.
Yes, most people these days want to run a business that feels nice and “makes a difference”, but everyone runs a business to make money and cash is a wonderful metric for determining how well the business is going. Soooo, do good business and make good money.
Do good business, made good money…
The idea with pricing is that you come up with a number that is considered fair on both sides. Fair to you because it rewards you financially for your time and investment, and fair to your customers in that they believe they are getting goods and services up to the value they have paid for.
Sometimes to make a return, you need to charge a price that your customers do not believe is fair — this is where the art and science of “value perception” steps in. I’ll be talking more about that in the very near future. Until then, let’s get rocking and rolling with pricing based on the idea that you are already communicating your value efficiently.
Here are three things to consider before you determine your pricing strategy:
What does it cost to create your product/service and get it to market? This includes:
• Your purchasing costs — such as raw materials, components, packaging.
• Your production costs — putting everything together as a finished product or service.
• Operational costs — including employees, administration, finance, rent, electricity bill.
• Marketing and sales costs — including websites/apps, advertising, print costs.
• Your costs as the business owner/director/chief cook and bottle washer — how much you need to take out of the business to live, which is very important and it’s surprising how many of us forget this bit!
What do your competitors charge for similar and how does their product or service differ? This includes:
• Is what they are selling a higher or lower quality compared to what you can provide?
• Are you higher quality so can charge more, or lower quality so need to charge a bit less?
• Where and how are they selling it?
• How accessible is it to your customer base? Therefore, can you sell online for slightly less and make a similar profit whereas they only sell in person/through a bricks and mortar location?
• How long have they been selling it and how successful are they? How trusted is their brand? Are your competitors well-known amongst your customers? Is that for positive or negative reasons?
How ballsy are you? Serious question. How BALLSY are you?
• Are you confident in your sales and marketing plan and do you have it mapped out for a well-considered length of time?
• Can you channel your inner Del Boy and feel comfortable during business transactions? If you are not too comfortable with sales, do you have someone on your team that is?
• Are you confident in communicating the justification of your pricing, especially if it is on the expensive side? If not, is there someone on your team that is?
You should be ballsy. Everyone should be ballsy, but sometimes when you are first starting out, you might need some time to lay your brand foundations before you start throwing your business weight around. Because of this, some new businesses like to set their prices a little lower than usual. As long as you’re selling and generating something in the way of revenue (and ideally, profit), it’s fine if you tiptoe into the market and gently plant your flag in the ground. Then with a little more experience, you can roll out your plans to dominate market share and increase your pricing to reflect this.
With this information under your belt, you can then decide which of common pricing strategies might sit well with your business model.
I will cover common pricing strategies in my next post, in the meantime, have a think about those three questions above, how many can you answer for your business?