Do you work hard to satisfy your customers but find out that you are not making much in profit? Then, it might be time to review your pricing strategy. One of the keys to growing a profitable brand is effective pricing and if you do not get your pricing right, it may hamper your dreams of building a profitable brand.
Before you settle for a price, the first thing to do is to research your competitors. What are your top three to five competitors charging for similar products (goods or services)? Be sure you are researching your true competitors before you reach a conclusion.
Who are your true competitors?
Your true competitors are those who have the same business, products and target audience as yours.
Please note that all these three things must match or closely match before a business is qualified to be your true competitors.
The reason for this is because you might be in the same business as another brand, but you might not have the same target audience. If your target audience is primarily middle class, your pricing will be different from what you’d typically charge the upper class.[Great Read: 3 Elevator Pitch Examples You Can Use as a Guide in Developing Yours]
Once you know what your competitors are charging, your next point of consideration is what type of business model are you operating on or at least what type of operation do you have? For example, if your business is about mass production, your prices will be cheaper than those businesses which provide customized options for their customers.
If you want to price effectively, you must also consider your operational costs. How much does it cost you daily, monthly and yearly to keep your business open? Some of your operational costs may include but not limited to:
- Office Supplies
- Employee Salary
- Data Costs
All costs associated with running your business must not only be accounted for, but they must be considered during your pricing process.
This brings us to the importance of proper record keeping. If you do not keep proper records, you risk running your business at a loss without even realizing it until it’s too late.
On the flip side, if you keep proper records, you can easily know at a glance what your operational costs are and how to come up with a pricing strategy that allows you to make a profit and stay in business.[Great Read: Understanding Influencer Marketing and How to Use It to Grow Your Business]
Pricing Strategy for Retail Business
If you own a retail business, your pricing strategy should be to maximize your profit as much as you can.
Most retail stores mark their products up as much as 200% to 500%. Yes, you read that right! Why would any business mark up its prices so high? It’s mainly because of operational costs and profit of course! Most of these businesses also source for products at extremely cheap rates then they price high so the business can be viable.
That’s why it’s convenient for a store to sell an item at 90% off and still make a profit off that item. This type of pricing strategy works for big box stores and stores that sell seasonal items.
If you live in an environment where the four (4) seasons are in full effect and you own a clothing store, your pricing strategy can be such that those who shop at the beginning of the season pay more than those who shop at the end of the season.
You might be wondering if this will make every shopper wait until the end of the season. Not always. Some people who really need those items will shop at the beginning of the season while pleasure shoppers or those who plan ahead might wait until the end of the season bargains before they shop.[Great Read: 5 Ways to Influence Prospects]
The most important thing is to understand the dynamics of your geographic location, shopping patterns of your target audience and what type of brand you’d like to be known for. For example, there are some stores that no matter what season of the year it is, their prices are mostly fixed.
So, your pricing strategy should largely depend on your unique conditions.
On a general note, when fixing your price, consider your operational costs. Your operational costs are the total costs that are required for smooth business operations.
If you are a micro business in the retail industry, you might mark up your products at least 30% and higher.
Just run the numbers and decide on what’s best for your business.
Pricing Strategy for Service-Based Business
The pricing strategy for a service-based business is mostly based on the amount of time invested in providing the service, the resources required to complete or render the service, the location, level of competence, experience and of course, operational costs.
If you are a beginner, you might want to charge lesser than those that have been in the industry for longer periods.
Depending on the type of service-based business you operate, you might experience some days where you don’t get customers or make no sales. This must be put into consideration when setting your prices.
Extra: The fact that you are in the same business with another business does not mean that your prices will be the same. What will mostly determine the price you charge is your target audience. The amount your target audience is willing to pay you depends on how your business is perceived (branding).[Great Read: How to Calculate a Profit in Business]
Thank you for reading. What type of business do you own and what pricing strategy have you adopted or planning to adopt? Share with us in the comment box below and remember to share this post with a friend.
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