Pricing is More of an Art
By Tom Irmen
Few entrepreneurial responsibilities faced by small business owners are more challenging than establishing prices for your company’s products and services. For many entrepreneurs, it’s a shot in the dark. Others may rely on competitive price comparisons within their marketplace, or perhaps your franchise or dealer network provide pricing recommendations. Regardless of how you arrive at your company’s pricing structure, pricing should be regarded as both a short- and long-term strategy designed to be a driver of both sales and high margin profitability.
Here are some important points to keep in mind when establishing your pricing strategy:
- Being busy does not equate to being profitable.
- Closing on 100% of your proposals likely means that your prices are far too low.
- Price gouging will likely only attract additional competitors into your marketplace, which will result in lower overall marketplace prices.
- Customers typically do not view pricing the same way as entrepreneurs. If the perceived value the customer receives from your products and services far exceeds their actual cost of the product, your price is likely too low.
Pricing is more of an art than a science, and many of us lack the prerequisite skills or experience needed to create a comprehensive pricing strategy. Regardless, the responsibility is yours.
Familiarize yourself not only with your competitors’ pricing but, more importantly, the perceived value they offer customers. Don’t rely entirely on the pricing models provided by a franchise or dealer who may be unfamiliar with your local marketplace. And don’t use pricing as the only tool to secure each and every proposal.
Every interaction with a potential customer provides the perfect opportunity to access your company’s value proposition. Are you viewed merely as a commodity or as a company whose extra services are perceived as extremely valuable, perhaps even indispensable, to a client? It is absolutely imperative that you clearly articulate to every potential customer the real value of the services or products that you offer if you are to succeed. Customers will select the company with the higher actual price, provided that the perceived value they receive is greater.
And one final thing. An estimated 20% to 30% of all customers are low price shoppers. Avoid them. This is the commodity marketplace that will leave you broke.