Setting a Price for Your Product or Service
Like you, I think about prices all the time and not just when I am working to set a price on a new printer. Whether its breakfast cereal, cars, leisure items like golf clubs, an app for my smartphone, lunch – I evaluate the price of a wide range of goods and services every day.
Pricing for your small business is a critical task – occupying a prominent seat at the marketing mix table along with the other members of the “four Ps” (product, place and promotion). Whether you offer a product or a service, you need to set a price that is fair and attractive to your customers while offering a profit to support your business.
When you work on pricing for your product or service, I recommend collecting as much information as you can in a couple key areas:
- Competitive Market – collect and analyze the competitive offerings available, how they are priced, and how customers are responding.
- Voice of Customer – I don’t care how you do it, include input from your customers in your pricing process. Pricing surveys are one way to collect the opinions of your prospective customers regarding how much they’ll pay for an offering like yours, and how they value specific features and capabilities.
- Costs – if you don’t fully understand the costs of your business, you won’t be able to analyze the effect of your pricing. Spending time here will help avoid unwelcome surprises later.
Once armed with this data, you can evaluate the different pricing options you have, and what you might expect will happen based on the option you choose as you zero in on what’s best for your small business.
These are just the high-level basics. There are many different strategies you can choose from when setting your pricing (cost-plus, market-based, etc) and considerations to take into account (is your industry growing? Mature? In decline? Are price promotions common-place? Do you sell direct to customer or through partners?). But spending the time to collect this base-level information is a solid first step in the right direction.
I’d love to hear how you approach pricing for your small business, or your thoughts on how you evaluate pricing either as a consumer or a professional.