Most people will tell you to research the market first and then figure out your price. While this is a useful step, this places the emphasis on comparing what you offer to what is in market. Your offer might be something completely new for the market, so you won’t have too many reference points to build your pricing strategy.
Instead of just going by what the market is, we suggest these 5 steps to discover the best pricing strategy for your product or service.
1. Determine where you’re positioned in the market
Are you a high end, low volume business or a low end, high volume business? If you’re at the high end, remember people may use price as an indicator for quality. If you’re at the low end, remember you don’t want to be too cheap, as people won’t value your products or services very much.
2. Choose how much profit you want to make
This is important to start with your margin first, as this is what will give your business cash flow. If you focus on profit as your starting point, rather than the final step, you may look at your pricing strategy differently. Profit is your focus in business, so you want to make sure your products and services have a healthy margin for you.
3. Boldly negotiate with your suppliers to bring down your cost of goods sold
If you find there are not enough margins in your pricing strategy, you can look into bringing the price you pay for the goods and services down. This might require you to do you research on how your supplier’s competitors price, so you walk into the conversation clear on why you now will pay less for their product or service.
4. Do a sense check with current market prices
While current market prices should not be the sole basis for your pricing strategy, they are a good guide on how much your product or service might be worth to the customer. If you price above the market, you want to have strong benefits as to why you do so for your customers. Some people might be willing to pay a premium and you usually need to communicate why this is so.
5. Feel into how much your customers and clients value your product
How much they are willing to pay? Remember your first sale will set your baseline price, so you want to get this right the first time.
When you choose how much profit you want to make, profit becomes your focus and you’ll be in a better position to know which pricing strategy is best for you in the long run.