Pricing is one of the most important aspects of any business. It can make or break a company, being the difference between success and failure.
There are a lot of factors that go into pricing, and it can be difficult to get it right. But if you don’t price your products or services correctly, you could end up losing customers.
How to decide on pricing
There are a few things to consider when deciding on pricing as a business:
- What is the cost of goods or services?
- What are the overhead costs?
- What is the desired profit margin?
- What is the competition charging?
- What is the target market willing to pay?
Once you have considered all of these factors, you can come up with a price that meets your needs and those of your customers.
The danger of cutting prices
When sales are slow, a knee-jerk reaction can be to offer discounts and slashed prices. Very often, this can put you in a death spiral as each sale results in a loss, making you more desperate for the next sale, resulting in more sales, and the process repeats.
Many businesses also report their most difficult customers are typically the ones spending the least amount of money. As such, cutting prices can result in a host of difficult customers coming on board who take up more of your time and end up costing you more to service.
Lastly, once you reduce your prices, you run the risk of ‘teaching’ customers to wait for a discount. As such, every time you increase costs again, sales dry up.
Focus on value
Rather than cutting costs to increase sales, push the value you offer customers to justify the price you place on your time. This could be;
- Sustainable/ethically sourced materials
- Guaranteed results/outcomes
- Experience and the benefits this brings
- High-quality services/products
- Higher quality delivery, e.g., ‘white glove service’ for trades
Reduce customer risk
Another alternative to cutting prices is to reduce the risk a customer might perceive they have by buying from anyone in your sector. This typically comes in the form of money-back guarantees but also in positive reviews, case studies, trial periods, and demos.
Provide a niche service
Becoming niche can sound scary, but if you’re the only company that provides a solution to a very specific problem, you can find it far easier to justify a higher cost. This is a simple law of all economics where high scarcity and high demand result in higher prices.
Extras and add-ons
Although similar to price cutting, offering extra bolt-on services is actually a better option in most situations. Firstly it avoids all the stigma of sales prices, but it also ensures your core price offering isn’t sacrificed.
Also, as the customer is still paying the original price, it helps weed out those difficult people who are only motivated by getting the cheapest deal at all times.
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