Earning profit is the primary motive of a business. If you’re a business owner who is only achieving to break-even or not making a profit, then either you’re operating a non-profit organisation or your business is likely to fail.
For a profitable business, the main determining factor is the price of its products or services. If the prices are too high, the customers will look for cheaper alternatives or if the prices are too low, the customers will doubt the quality. Therefore, it’s important to set the right price for your products or services.
If you’re planning to launch a new product or service in the market, use the following guide to fix the right price and get the maximum benefit from your offerings.
The first step is to understand what’s the cost you are paying to provide that product or service. It includes material costs, overhead costs, labour costs, and other costs related to training, marketing, packaging, etc. Calculate all direct and indirect costs and decide to what extent it will reflect in your pricing.
Market analysis is a necessary aspect of price determination. Look at what your competitors are charging for their products or services. Find out what difference they’re offering for similar products or services. Instead of simply competing on the price, understand their strategy and look for other areas to compete such as ambience, packaging, promotion, etc. By fixing a lower price compared to your competitors, you can’t establish a long-term relationship with your customers. Offer them something unique that your competitors are not and select a price range near to that of theirs.
Your buyer plays a major role in determining the price of your products/services. After all, you’re offering your services to the buyers and your revenue depends on them. Conduct a buyer analysis to get a few pricing options. Get a sample survey from a target group to understand how much your buyers are willing to pay and how much difference in price will affect their buying decision.
A pricing model is essential for service providing businesses. Decide whether you want to charge on an hourly basis or per-project or unit basis. For example, if you’re a bookkeeping firm, you can charge your clients according to the hours you spend on their work or offer a monthly service with fixed working hours. The pricing model can vary according to the services and the type of industry.
To manage your business effectively, your job doesn’t end at setting the price. Constantly monitor your prices, understand how the competition is going, analyse the change in your costs and raise your prices if required. The best time to increase the prices is when your rivals are raising the prices. But, make sure that you don’t raise prices all at one or else your customers might not take it well. Rather, raise the prices in small increments over a period.
Setting the price of your product or service is a crucial part of a business. Be wise and consider all factors before making decisions. Consider the costs you’re paying to produce the product or offer the service, analyse the market, understand what your buyers are willing to pay, choose an appropriate pricing model and monitor your prices to ensure a profit in future. Make sure that you follow a pricing plan and have a strategic approach for best results.
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