How to Determine a Pricing Strategy
Pricing your products or services accurately is one of the key factors in creating a successful business. If your pricing is off either too high or too low, customers won't buy, and there goes your business. So while there are many other details to attend to when opening up a business, pricing shouldn't be left out. There are several factors to consider when determining your price, and they need to be re-evaluated on a consistent basis to make sure the price is right.
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Instructions
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Research your market. There is no way to determine how much to charge for your products or services if you don't know how much your customers will pay. Study their demographics and income levels, and learn about their spending habits. If you can't afford to spend a lot on market research, "Inc." magazine recommends sending out surveys to your customers themselves. If you see that there are several categories in your market and they exhibit different spending styles, choose one.
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Calculate your costs. You can't price a product in a vacuum, so you need full details about what's coming out of your pocket to figure out how much you need to charge to put money back in. Consider all of your costs --- parts, labor, overhead, operating expenses, rent and anything else your business uses. Spread this number out over a few months' time to see how much money you need to make per month just to break even.
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Decide on a revenue target. Once you know how much you are spending, choose a number over and above that to be your profit margin. The price you charge for your product has to do more than cover expenses; it has to provide the incentive for you to be in this business altogether. Consider how much money you want to walk away with, and factor that number into your pricing when you estimate how much you are going to sell.
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Check out your competitors. You don't want to be too off in any direction from the going rate for similar products. Customers know more or less what your product is already worth, based on what your competitors are charging. If you bring some new value to the market, you can surely charge a bit more, but not too much more. Similarly, if you charge too little, customers may perceive your company as cheap.
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Tips & Warnings
Re-evaluate your pricing strategy on a consistent basis, and change it as necessary.
Don't drop prices to gain customers. They will pay the price that your product is worth.
References
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