How to price your products varies depending on what you are selling.
Many entrepreneurs in the service based industries often struggle with how to price their products. Many start off by charging a per hour fee, but that doesn’t always work for the consumer. Let’s consider an alternative for service based companies.
Value Based Pricing for Service Based Industries
How to price your products using this pricing model means you need to understand your target market and what competitors are charging in this market.
Can you charge the same as your competitors or do you provide additional value that your customers are willing to pay for.
This means making a list of what your competitor’s pricing includes and matching it to what you are offering. If you are offering LESS value, then your price needs to reflect this difference. But if you are offering MORE value, then make sure your pricing reflects the extra value to the consumer.
If your competitor is offering packages, then how do your packages compare? Can you differentiate your packages from your competition? Always test your pricing with your client prospects by asking them questions about your package content and pricing. If you get a positive response, then you are on the right track.
Matching your pricing directly to your competitor’s pricing. This is easier to do when pricing a physical product rather than a service, because usually the pricing is already published.
Cost Plus Pricing
Again, this is usually used for a physical product. This method means that the starting point is the cost to manufacture the product plus any inbound freight. Then this price is “marked up” to establish a selling price. Most industries have a standard margin. For example in the restaurant/food industry 70% markup is common. While that might seem very high, many factors go into why this is necessary so that the business can run at a profit.
High Price Strategy
if you have a unique product and it is truly groundbreaking, then you have an opportunity to set your prices on the high side until the market catches up with you.
An example of that is the way that Apple can apply a high price strategy out of the gate with it’s new products, especially if they have absolutely unique features that speak to their customers. When the i-phone was first to market, Apple was able to use this strategy and still does for its new product launches.
Low Price Strategy
If your product is considered more of a “commodity”, meaning there are plenty of competitors, you may want to use this strategy to enter into a crowded market until you can establish your brand value.
As long as you are still selling above your costs, you can use this strategy. Once you have established your brand, then you are in the position to gradually raise your prices. However, if you are in the
“value” market you need to keep your eye on the ball as regards to how you price your products, because there is often a “top” tier in value markets that you can’t always push through, because it will meet resistance.
If you would like to learn more about how to price your products, listen to our podcast with UK pricing expert, Sally Farrant. She demonstrates how to get to “value pricing” and how the customer journey works so you can learn how to price your products.
Pricing in Your Small Business Podcast
Click on the heading above to listen to the podcast.
Elaine Slatter is a Small Business Expert, founder of XL Consulting Group and author of the popular book, “Fabulous Fempreneurship”, a complete business guide for women. XL Consulting Group helps entrepreneurs with market planning, strategy, branding, web design and social media. She has over 30 years of executive business and marketing experience and is ready to help you rocket your business to success. Elaine is passionate about mentoring women to become successful women entrepreneurs. To find out more, visit XL Consulting Group or join the Fabulous Fempreneurship mastermind.