Pricing is a topic that is often poorly understood by business owners.
Three methods dominate:
- Cost plus pricing - find out the costs and add on the profit margin you want to get to your selling price.
- Competitive pricing - how much are your competitors charging? Can you justify a premium, do you need to sell at a discount?
- Finger in the air pricing - I wonder if any customers will buy at this price?
Each of these approaches has its weaknesses although the temptation to use them is strong.
Pricing is a lever that has a dramatic impact on the profitability of any business. A relatively small price increase has the potential to double profits if sales volume reductions aren't big.
How price sensitive are your customers? How well informed do you think they are about the prices available in the market? How willing are they to pay a small premium to buy your product and services?
You may want to read my business strategy blog - www.DifferentiateYourBusiness.co.uk