price point 7 tips on pricing
Price point – how to decide? Business plan or not, you simply must have some sort of a strategy for your pricing or it could unravel all your work and dreams with one simple mistake. If you want to lose money at a business-like pace – just focus on the delivery, without doing the math correctly. Price point is a frighteningly common fail and a stumbling block for many a first-time entrepreneur with more enthusiasm than strategy.
Here’s some tips on how to arrive at the correct price point:
1) find out what customers think
What are people willing to pay for it? Do your homework – assumptions might be wrong either for too little or too much. You should explore how much your target customer is willing to spend and why they would spend more on that product or service. Competitor and market research is valuable for positioning. Talk to your target customers before you decide – they are the ones best placed to tell you what they will spend on something. Know what is needed in your proposition to attain the best price.
2) make the price work for your success
First, put a figure on success. How much do you need to be successful? Set your goal higher than you need and work backward from this sales target. Price will play a big part in that sales target – obviously a higher price meaning that less units need to be sold. Remember that you can drop a price easier than putting it up.
3) make your brand strong
Price needs to be several times more than cost per unit. We all know those ‘shake-head in disbelief’ tales of the product made for 50p and sold for £20 but in truth a strong brand can often justify a difference in price – people can copy products and services but brand is yours alone.
4) build in time and labour costs
Your time, your company’s time, is a resource. Time turns out to really be money, after all. Price has a relationship with how long you need to sell each unit. If every hour has a cost, make sure you are making more per hour than the cost per hour.
5) can you sell it again and again to one customer?
New customers are good, repeat customers are better. How long does the product or service last? For example, if it’s a product that lasts for years with no replacement or if the service is not needed after one go – then you are missing out on repeat custom. Repeat custom is a cornerstone of growth. An item sold once per person needs to either be sold for a lot or to everyone.
6) luxury or value?
If the unit is sold as luxury – reflect in price point, selling the higher values as the service or difference. If it’s cheap – or shall we say a ‘value’ service or product – then you simply need to ensure you ‘stack ‘em up high and sell ‘em by the dozens’ and sell on lower price point as a sales angle. If it’s a value service as opposed to product, you need your through-put – your time per job, to be fast.
7) how much product or service have you got to shift?
Supply. What bulk, how many units of X can you get hold of and supply? This is relevant in that if there is high demand for products you can get an abundance of cheaply – you can go for the aforementioned ‘stack ‘em high – sell ‘em low’ strategy to make sure they shift. If this is not a product but a service that’s cut-price, you may need a large workforce to facilitate it – and that’s a chunk of capital to consider.
How much something is worth is not always an obvious question and what you decide as the correct charge will affect everything in your business model. Be certain that without a strategy you are throwing darts in the dark – which is not to be recommended.
For an analysis of your best price point, get in touch with our team.