Setting the right price

Over the past few years, I’ve advised hundreds of businesses in Brighton, Sussex and London.  From these 200, I’d say that maybe 10 were pricing at the right level.  Most people get the whole issue of pricing wrong, so here are some principles to help you avoid this classic problem.

Firstly, remember that pricing is a marketing led decision.  You need to charge what people are prepared to pay.  If it costs you 50p to make a pen, and people are prepared to pay £100 for your pens, then please do not charge them £1.  If it costs you £50 and people are only prepared to pay £40, then you need to look again at the business that you’re in.

Be unique

Do not be tempted to charge in line with the rest of the market.  Many people look at what everyone else is charging and put their price somewhere in the middle.  Instead, concentrate on making your business unique in some way, have a read of how you could try doing this in this blog – Seth Godin’s purple cow.  If you can be faster, nicer, funnier, longer lasting than the others, do it.  That way you can charge more than the competition.

Be careful of charging less than everyone else (which is what a lot of people do when they’re first starting up.)  It’s difficult to increase your prices once you’ve set them low, and it doesn’t give you any scope for giving discounts for special offers or for customers you really want.  If you’re a small business it’s difficult to compete on price, because the bigger companies will always have deeper pockets and will have no hesitation in squeezing you out and then putting their prices up.

No competitors, no benchmark?

If you’re doing something very new and unique, then there are often no competitors to judge your price against.  So how do you find out what you need to charge?

You can look at what people might otherwise spend their money on.   If you sell videos that are embedded in websites (a great business to get into at the moment) then look at other forms of marketing that companies might spend their money on.

Consider what the benefits are to the person that buys from you.  Is it something that is going to make them feel great?  Is it something that will save them lots of money over the long term?  Is it something that all their friends will be impressed by?  Try to put a value on that.

Ask people

And of course, you can ask people.  Do a survey and ask as many people as possible what they would be prepared to pay for what you’re offering.  Don’t get too hung up on giving your idea away – you’re going to have to tell people what it is in order to sell it anyway.  Use Survey Monkey for a fast way of putting together online surveys, or go out into the street and just ask people.  Most people love to be asked their opinion, so don’t be shy…just ask.

If you’d like some help with getting your pricing strategies right, don’t be shy to ask. Do get in touch if you’d like some help with your business.

Photo credit – Felt tip pens by Danel Solabarrieta, from Flickr on a creative commons licence