Advice:How to choose the right price for your product or service

By , published on 8th September 2010

Pound CoinsOne of the most difficult, yet important, issues you must decide as an entrepreneur is how much to charge for your product or service. While there is no one single right way to determine your pricing strategy, here are some important points to bear in mind.

Your price sends out strong messages to your customers and affects the way they view the quality of your product or service.

Many small businesses make the mistake of undervaluing their product, and starting out at too low a price simply to ‘get a foot in the door’. If you do this, it can cause 3 main problems for your business:

  1. It stops you making as much profit as you could.
  2. It establishes you as lower quality in your customers’ eyes
  3. Once you are established, it is very difficult to change customers’ perceptions of you as ‘cheap’, and to get them to accept price increases.

Conversely, if your customers value your product at below the price you need to charge to make a profit, you have some serious thinking to do.

Beware the trap of pricing to match or undercut your competitors. This . too, has its problems, it can start destructive price wars and again has nothing to do with actual customer needs and perceptions.

Your price must contain 3 elements:

  1. Cost to produce
  2. Cost of time/people to get it to the customer
  3. Your profit margin

Remember price is a marketing issue because it sends your customers a strong message about your image and branding.

You may vary your pricing, depending on your goals. For example, you might charge a lower introductory price for a short period of time to attract a large number of new customers.

If in doubt, price on the high side. It’s always easier to discount prices than to raise them.

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Janette Whitney

About Janette Whitney

Janette Whitney is an award-winning business consultant, media columnist and award-winning business author. She specialises in business growth strategies and finance and formed her consultancy business after a highly successful career in banking. Janette’s expertise has won her both national and regional awards which include ‘Consultant of the year’ and ‘Business Book of the Year’ award (as co-author of ‘The Essential Business Guide’).

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