{"id":6569,"date":"2014-06-26T11:00:44","date_gmt":"2014-06-26T16:00:44","guid":{"rendered":"http:\/\/smallbizsurvival.com\/?p=6569"},"modified":"2014-06-12T17:27:49","modified_gmt":"2014-06-12T22:27:49","slug":"setting-the-right-price","status":"publish","type":"post","link":"https:\/\/smallbizsurvival.com\/2014\/06\/setting-the-right-price.html","title":{"rendered":"4 Pricing Strategies Every Small Business Should Know"},"content":{"rendered":"
\"price<\/a>

Pricing (CC) Ben Ostrowsky, on Flickr<\/p><\/div>\n

The words \u201cprice\u201d and \u201cright\u201d might make you think about the game show \u201cThe Price is Right.\u201d However as a business owner, you know, or soon will figure out, that pricing is not a game.<\/p>\n

The landscape of closed businesses are littered with businesses that failed to get their pricing strategy right<\/strong>. Some owners realized their mistake but did not correct quickly enough or sufficiently. Others just did not pick up on the signs that they were headed for trouble.<\/p>\n

Business owners often realize they have pricing issues at one of two times. The first is when the checkbook is empty. The second is during tax time and they have nothing set aside to pay the tax bill for the year.<\/p>\n

For some businesses, pricing issues do not show up quickly <\/strong>if they are using other sources of income, such as their family, to bolster the firm\u2019s coffers. Typically, business owners in this situation think that the business will turn a profit in time.<\/p>\n

Often, business owners do little planning to set the best price point, or one that gets the maximum return, for the business. A good pricing strategy requires thoughtful consideration. Some questions you need to answer are:
\n\u2022 Who are the clients you want to attract?
\n\u2022 What is the image you want to display?
\n\u2022 Who are your competitors and how will they respond to various price points you might set?
\n\u2022 Are you dealing with a commodity good or a premium good?
\n\u2022 Can you distinguish yourself from the competition?<\/p>\n

In answering these questions, you should keep in mind four primary pricing strategies <\/strong>that business owners often use:<\/p>\n

\u2022 The first strategy is called \u201clowest price.\u201d <\/em>The advantage to this method is it is clear to the customer. However, the disadvantages are pretty substantial. First and foremost, customers in most cases are driven by factors other than price. Price may get someone in the door one time, but without a clear benefit, people probably will go back to business owners with whom they have a longstanding relationship. People switch for better products, services or customer service, not cost.<\/p>\n

\u2022 The second strategy is pricing based on costs-plus<\/em>. This involves calculating the cost to make your product, then adding a flat amount or a percentage for overhead and profit. This should avoid the problem of underpricing so that you run out of cash. But it doesn\u2019t take the competition into account. It also does not take into account that you may have a premium product, offer an experience or provide another value-added element for which people will pay.<\/p>\n

\u2022 A third method, related to the cost-plus method, is using standard industry markups<\/em>. Industry markups should help ensure you make a profit, but they don\u2019t look at how competitive you might be. Related to this strategy is using a return-on-investment approach. Some of the same negatives mentioned before also would apply here because it ignores the competition. You want a return that covers not only your labor but your intellectual capital and the risk you are taking, and provides some level of a return on your investment.<\/p>\n

\u2022 The last approach is value-based pricing<\/em>. It basically is a combination of the other methods, along with an understanding of where your product sits, in the customer\u2019s eyes, in terms of a scale from being a commodity to being top of the line. The approach is meant to maximize your return.<\/p>\n

Maximizing your return may mean your pricing is not the highest or the lowest. It is that which adds the most to your bottom line in the long term. The biggest difficulty is understanding what your advantage is and having the ability to maintain it.<\/p>\n

Pricing is part science and part art. Getting it right is hard, but getting it wrong means a waste of your time and money<\/strong>, and perhaps the end of your opportunity.<\/p>\n","protected":false},"excerpt":{"rendered":"

The words \u201cprice\u201d and \u201cright\u201d might make you think about the game show \u201cThe Price is Right.\u201d However as a business owner, you know, or soon will figure out, that pricing is not a game. The landscape of closed businesses are littered with businesses that failed to get their pricing strategy right. Some owners realized […]<\/p>\n","protected":false},"author":10,"featured_media":6570,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","episode_type":"","audio_file":"","cover_image":"","cover_image_id":"","duration":"","filesize":"","date_recorded":"","explicit":"","block":"","filesize_raw":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_newsletter_tier_id":0,"footnotes":""},"categories":[3,7],"tags":[70,48,156],"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"https:\/\/smallbizsurvival.com\/wp-content\/uploads\/2014\/06\/Pricing-Ben-Ostrowsky-Flickr.jpg","_links":{"self":[{"href":"https:\/\/smallbizsurvival.com\/wp-json\/wp\/v2\/posts\/6569"}],"collection":[{"href":"https:\/\/smallbizsurvival.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/smallbizsurvival.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/smallbizsurvival.com\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/smallbizsurvival.com\/wp-json\/wp\/v2\/comments?post=6569"}],"version-history":[{"count":3,"href":"https:\/\/smallbizsurvival.com\/wp-json\/wp\/v2\/posts\/6569\/revisions"}],"predecessor-version":[{"id":6580,"href":"https:\/\/smallbizsurvival.com\/wp-json\/wp\/v2\/posts\/6569\/revisions\/6580"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/smallbizsurvival.com\/wp-json\/wp\/v2\/media\/6570"}],"wp:attachment":[{"href":"https:\/\/smallbizsurvival.com\/wp-json\/wp\/v2\/media?parent=6569"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/smallbizsurvival.com\/wp-json\/wp\/v2\/categories?post=6569"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/smallbizsurvival.com\/wp-json\/wp\/v2\/tags?post=6569"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}