The Price Is Right Or Is It
Sep 14, 2008
The three most popular approaches -- in order of their use by entrepreneurs -- are cost-based, market-related and competition-driven pricing. Frankly, any wise entrepreneur should take into account all three techniques before publishing prices.
- Costs plus a reasonable profit
- Clear understanding of all your costs
- Labor, materials, direct overhead and indirect costs
- Estimated volume of sales to allocate costs
- Fixed and variable costs
- Product "break-even point"
- Markets tolerance for your price
- Price sensitivity - wholesale vs. retail
- Value of "sizzle"
- Supply and demand
- One-of-a-kind products
- Understanding your distinct advantage
- Consider "introductory" low-price offer
"Right pricing" is the art of choosing the best price for your inventory. It requires information, facts, analysis and a tailored strategy before you establish your pricing policy. At a minimum, your pricing policy should take into consideration the following:
- Your true product costs
- Market supply and demand
- Anticipated sales volume
- Competitors' prices
- Economic conditions
- Business location (retail)
- Seasonal fluctuations
- Customer psychological factors
- Credit terms and purchase discounts
- Customer price sensitivity
- Desired business image
- Market share
The biggest mistake small businesses make concerning pricing is not reassessing pricing on a regular basis. The marketplace is constantly changing making it mandatory you keep a close watch on your pricing. Raise or lower prices as necessary keeping the above suggestions in mind.
In order to ease the pain of your customer when increasing prices, you may want to consider the following:
- Notify your existing customers of the increase and, if possible, give themthe opportunity to purchase at the existing prices
- Try and advertise the increase along with "new and improved" products or services
- Give the customer something in return for the increased costs. For example, free shipping with orders above a certain value
- If possible, delay the increase for existing customers
Successful businesses develop pricing strategies along with written policies and procedures to insure they meet their projected sales revenue and margins. Are you a winner at "The Price is Right"?