Small Business Pricing Strategies

Having the right small business pricing strategies will help to ensure your small business success.

Whatever product or service you offer to the world, if you don’t make a profit, you’re wasting your time. Business is, after all, about making money. The wrong pricing strategy can kill your business before it ever gets off the ground.

Charge too much and you may not be able to get the business you need in order to keep on keeping on. Price it too low and you could end up "giving away the store."

So there's a delicate balance to small business pricing strategies – and the dynamics will impact every aspect of your business – production costs, timelines, marketing budgets, even the guarantees and warranties your customers will expect from you.

Take the time to test your ideas.

Be prepared to backtrack. Research is key, so sharpen your pencil, grab your calculator, and let's get started.

Small Business Pricing 101

Pricing is THE most important of the 4Ps of Marketing - which are Price, Product, Place, and Promotion – and it's the only one that generates REVENUE. The other Ps generate expenses for later returns.

Here are some key factors to consider when developing a small business pricing strategy:

• What are your competitors doing when it comes to price? Should you try to undercut them or offer more value at a higher price? Learn more about pricing strategies related to your competition...

• What will your target market bear, in regards to pricing? Some products and services are considered worth paying a higher price for. Are you offering a boutique service, or will your strategy be to compete on the budget level? Learn more about pricing for what the market will bear...

• Do you know how to set your pricing to adequately cover your costs? You have to know what your expenses are, so that you can generate a profit with the prices you set. Otherwise, why be in business? Learn more about how costs and pricing relate...

• Did you know that adding value can enable you to raise your prices? Perception is a large part of a solid pricing strategy. Sometimes it's better to add value, rather than offering lower prices than the competition. Learn more about adding value...

Keep in mind too that the internet has raised the pricing bar to crazy competitive levels. If you want to charge higher prices, you'd better have a unique product that's hard to duplicate. Even if you do, expect that someone is bound to attack you and your product with vicious price-cutting at some point along the way.

The key with setting a small business pricing strategy is to plan carefully and monitor more carefully. It's the little things that will bite you when you're not looking.

Setting Your Small Business Pricing

Here are some strategies you might consider as you set your prices:

1. Breakeven Pricing. How many widgets do you need to sell in order to generate profit? The formula is:
   Fixed Costs divided by (revenue per unit minus variable costs/unit).
   
   Before you see any profit, you’ll have to cover expenses, both fixed and variable. The more you sell, the more variable costs you incur. If you know your break-even, you can set pricesCalculate the point where your revenues equal your costs, then set prices by adding your margin to unit pricing. For more information on doing a break-even analysis, see this page from the Small Business Canada site at About.com.

2. Markup Pricing or Margin Pricing. Most people confuse mark-up with margin. Both methods deliver similar yet different information. If the profit percent is based on cost, it's called Mark-up (i.e., you mark up the costs). If it's based on the selling price (which includes costs etc.), it's called Margin.

3. Competitive Pricing. If your product is "another one," available from several suppliers, you might be limited to very narrow margins in order to stay competitive on price.

4. Perception Pricing. The higher the perceived value of your product or service, the more people will be willing to pay for it. If you build in various value offerings, you can plan for higher margins.

   For example, what are your guarantees and warranties? Tech support? Packaging? Shelf life? Quality ingredients? If you're properly plugged into your targets, you'll be able to add valuable options that suit them.

5. Rule of Thumb Pricing. When I was in advertising, we marked up our work by 17.63%. In printing, we added 40%. And in some businesses, pricing is always double the cost. It's a rule you create that you apply to all your offerings. Sounds simple, and it is – but it doesn't relate to every business.

You can see that there are many approaches to small business pricing, some more scientific and systematic than others. But the bottom line is that they all consider the competition, the market climate, quality and quantity of inventory, uniqueness and what else is available in the marketplace.

Be prepared to test your small business pricing strategy and be open to change it if the situation warrants.

Help for Setting Prices

Perfect pricing is not an easy matter for most small business beginners. But no worries... I've gotten access for you to a great email course that will help you make the right pricing decisions.

"Make Your Price Sell!, The Masters Course" provides the information and strategies you need to determine the "Perfect Price." The course covers background pricing theory, key business models, target market profiling, the importance of the perceived value of your product or service, and much more... exactly what you need to make a profitable pricing decision.

And best news of all... "Make Your Price Sell!, The Masters Course" is itself priced perfectly...

It's free!

I highly encourage you to check it out. Set the right small business pricing setpoints for your product or service.

Sign up for the Make Your Price Sell FREE course here

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