Are You Pricing Right for Success? 7 practical questions to ask of your business

Happy owner of local business. Female entrepreneur collecting and packing gifts

Pricing is always a tricky area to get correct. Once business owners have established their pricing at the beginning (because they had to!), a lot of businesses shy away from it. When buying a product or service your customer wants to receive good quality and value. Your pricing should reflect this. I think it’s even more important at the moment when there are limitations on what we can buy and where we can go. Consumers are becoming more loyal to those businesses they can trust to deliver what they want and need.

I noticed last night that a café local to me is reopening for takeaways – great to have somewhere to go! Also all items are reasonably priced and marked clearly for their clientele.

For a food-based business, it’s important to watch that you charge to cover your ingredients, but it is also crucial to keep the goodwill of customers.  I am happy to recommend this café because I know it offers lovely food but you also receive value for money. 

It is no different for all businesses. They should all cover their costs and give clients value for money. Does your pricing reflect what you provide for your customers? Is what you provide considered good value for money?

Hi, I’m Anna Goodwin, your friendly finance mentor.  With over 30 years of experience I know it’s important to set the correct price for your product or service.

Getting the price wrong will make a significant difference to your turnover and profit. I look at this more fully in my latest book, Your Business Your Numbers.

When you consider your pricing strategy, you need to give some thought to your targets.

What is the purpose of your pricing? What do you hope to accomplish?

These are the main pricing goals:

  • To maximise profit: to improve current profits, as opposed to long-term profits.
  • To maximise revenue: to maximise current revenue without consideration for profit margins, and the intention is usually to maximise long-term profits.
  • To maximise quantity: to sell as many units as possible or serve as many people as possible in order to decrease long-term costs.

Preparation Is Key to Pricing!

  1. Do you understand the market well enough?
  2. Do you understand your product or service well enough, including allassociated costs?
  3. Are you dealing with a basic or a premium product?
  4. Do you understand your ideal customer well enough? Who do you want to attract?
  5. Who are your competitors, and have you checked your competitors’ pricing?
  6. Can you distinguish yourself from the competition?
  7. What is the image you want to display?

 

In a recent mentoring pricing session, I emphasised how important it is to prepare now, in advance of any action taken.  The client is hoping to offer a new package but before he even gets to the pricing stage, I explained that he would need to do ask himself some questions.

This package will need increased advertising if it is going to launch successfully so these additional costs will need to be taken into account in the future price.  It is so important to take account of all costs in your pricing, and not just variable ones, the ones that change with the volume.

Have you included all your costs in your pricing? Some of these may be different to your normal costs in a socially distancing world. Some could be increased, and some could be decreased.

Fixed costs

·      Office rent

·      Insurance

·      Loan interest

·      Salaries

·      Advertising

·      Broadband

Variable costs

·      Salaries

·      Materials

·      Packaging

·      Credit card/PayPal fees

·      Delivery costs

 

In the current world of social distancing, setting yourself apart from your competition is an opportunity. Businesses large and small have shown real creativity in how they are overcoming any obstacles. Sometimes, this may mean that customers are willing to pay more. However, you have to know your customers before you make this decision.

On the other hand, there may be a temptation to reduce prices in the current climate to attract customers. However, this is not necessarily the answer. It may not be about reducing your prices but about adding value. A local grocer was providing a bunch of flowers with each purchase of plants last weekend. It went down very well with customers.

What could you do in your business to add value to your customer?

Take a close look at your pricing and consider whether it is right for you and your business. You may be surprised!

Next time will be all about planning for future success.