One of the most difficult aspects of starting a business is determining the cost for your product or service. If you charge too much, you may run customers away before they ever have the opportunity to experience your product or service. If your pricing structure is too low, you may be viewed as having an inferior product or service.
The first step is to establish a baseline of what customers are willing to pay. This can be done by conducting surveys and analyzing competitor’s rates. But it is important to make sure you are comparing apples to apples. Exactly what does your competitor’s product or service offer vs. your business? This process will also help you determine how you are going to set yourself apart from your competitors.
Create a detailed budget looking at all aspects of the business to include marketing expenses, office supplies, outsourcing costs, etc. Determine if your pricing will be able to cover your expenses and survive in this price range. If not, dive in to see how you can lower your costs. If you have a product, should you go overseas for manufacturing, should you order in larger quantities to get a volume discount or are your packaging expenses too high? If you have a service, what expenses are driving your costs up and can those expenses be lowered without having a negative impact on your business?
Once your price is set, it is always easier to lower the price than increase. But before you lower the price, it is best to test the lower price with a “sale” or discount code. If the sale or discount code does not drive anymore sales, than there may be other factors that are not bringing in business, such as lack of marketing or you have something that is not needed.
The last recommendation is to use QuickBooks to track your income and expenses and analyze what aspects of your business are profitable and ones that are not drawing the income needed. This will help drive the direction of your business by focusing on the profitable aspects. And if needed, adjust the prices of the non-profitable areas or eliminate that part of the business.
It is important to remember that pricing is not an exact science. It is a test that will change over time. There are factors that will continue to require you to analyze your pricing, such as the economy, seasons, and as trends in the business environment change. Therefore, just because you have set your price, it should be continually looked at for necessary modifications. But caution should be taken to not change your pricing too often, which may cause confusion for your customers and may be viewed as instability within your company.
Lesley Spencer Pyle is the founder and president of the HBWM.com, Inc. Network which includes Home-Based Working Moms(
Home-based working moms) and HireMyMom.com (
HireMyMom). Pyle has been featured in numerous publications including Forbes, Entrepreneur, Wall Street Journal, USA Today, Parenting, Dr. Laura's Perspectives, Family PC and many others. She has 4 children ages 2 to 14 years and has been working from home since the first baby was born!
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