Are you re-evaluating your prices right now? Are you considering special discounts or limited-time promotions? If so, you’re not alone.
How can you set prices that are attractive but don’t result in unintended consequences, such as establishing a precedent of discounting that would change the way people buy from you?
Here are five things you should consider when pricing your products and services.
1. What value are you creating for your customers?
This is always the first question to ask. Can you quantify the value your offering delivers, whether in the form of revenue generated, savings achieved or, even, happiness realized? Your price cannot exceed your customers’ perceived value.
2. What does it cost you to provide that product or service?
Once you know the perceived value of your offering, take a look at your costs to deliver it. Make sure the value exceeds your costs. If it doesn’t, you can’t sell it profitably.
3. What is your target customer’s willingness and ability to pay?
Just because your customers perceive something to be very valuable, does not mean they can afford it. For example, I’d love to be sailing around the world in a yacht right about now. But…
4. What are your competitors charging for similar offerings?
Business owners often start with this question, but they shouldn’t. Why not? Because successful businesses differentiate themselves, making a true pricing comparison apples-to-oranges.
But, once you’ve quantified the value of your offering — and you’ve confirmed you can profitably sell at that price AND your target customers are able and willing to pay it — you can go out and find some oranges for comparison. The difference between your price and your competitors’ prices should be justifiable based on the differences between your offerings.
5. Is there a way to avoid across-the-board price reductions?
There’s an old saying that it’s easier to lower your prices than it is to raise them.
So even if you need to do some discounting in the near term, look for ways to avoid locking in those lower prices. Could you:
- Break your offering down into pieces and offer a lower-priced item first? This makes it easier for a new customer to commit to working with you.
- Make your discounts temporary? Limited time offers also help to create urgency and, consequently, action.
- Limit discounts to bigger purchases? This is common with free shipping offers; you might provide free shipping if your customer purchases $200 or more, for example. Or you might discount customers who commit to a one-year agreement with your business.