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Is Your Price is Right?

May 10, 2009

“How much should I charge?”

Finding just the right balance among all the factors is more art than science. Pricing too low can hurt your profits, while over pricing also can hurt.

A common misstep—especially in the early stages of a business—is pricing too low in order to attract customers. While special deals work sometimes to start the ball rolling, going low is not always the best path. Low prices may draw customers interested only in price … the ones most likely to abandon you the moment they find something even lower elsewhere.

Relying on low pricing to attract clients is even more dangerous for service businesses. You only have so many hours to sell. Your business can’t make it up in volume like a retailer who may still profit from lower prices if volume is high enough.

Pricing is partly psychological. Set your levels according to the perception of your product or service “brand.”  If you’re a premium brand, your pricing can be higher to match an upscale image. Pay attention to price points.  They differ widely by product and industry.

Pricing is an ongoing process, so test your pricing periodically. You may need to adapt to changing conditions. Competitor prices, your own costs, customer perceptions and your profit expectations can all change.  Or you may want to simply test different pricing levels to see what works best for your business.

Research the norms for your industry, including price ranges across the country if you sell nationwide. You may want to charge more or less, depending on your brand positioning.

Make sure you use timely and accurate information to calculate your costs for labor, supplies, and direct and indirect overhead for every product or service you offer.  “Guesstimates” are not good enough and may cost you far more than the hour or two of research.  Also take into account seasonal fluctuations that might cause short-term increases.

To learn more about pricing, contact SCORE Lancaster “Counselors to America’s Small Business.” SCORE is a nonprofit organization of more than 50 volunteer business counselors who provide free, confidential business counseling and training workshops to small business owners. Call us at 717-397-3092 or find us online at www.scorelancaster.org.

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