Like any other business, you’ll eventually need a company pricing strategy. It’s an important part of the puzzle, so you want to make absolutely certain you get it right. Many different factors go into figuring out just how much you should charge for your products and services and we’ll explore some of those things here.
Keep reading to learn more about developing a company pricing strategy that will work for your business, because many of your other business practices will depend on it.
Product Pricing, Risk, and Development
It’s the goal of every business to make money, but when you set out to do that you often need to take existing business trends and other factors into account.
Hitting a product price that’s just right for what you offer is a process that’s ongoing throughout your company’s entire lifespan. It should start during the planning stages so that you can begin laying a foundation for your marketing efforts early on and allow you to hit the ground running as continued development moves forward.
So how to do you determine what to charge for your company’s offerings?
- Realize That It’s All About Demand – How much you can charge for your services will partially depend on how much people want it, so you will need to see how much of a demand there is for your services. It’s also important to realize that, for some offerings, demand can fluctuate throughout the year and the price that you charge might have to shift accordingly. Look closely at businesses similar to your own and see how busy they are. That will give you some strong insight into what demand for your product is like.
- Look Closely at Your Competitors – Speaking of similar businesses, you want to look at what others who are already established charge. This will show you what people are used to paying and give you some ideas about how you can use price to make them into repeat customers of your own business. Even when you do that, however, it’s important to develop a company pricing strategy that brings in revenue to keep you afloat in the short term, stabilize your practices as you move forward, and expand your business in the long term. While the prices of other companies can help you do that, you don’t want to use their price as an absolute authority on what you should be charging for your own services.
- Take Your Operations Into Account – Effective pricing strategies don’t just take the costs of raw materials into account; they factor the cost of running the entire business into the equation as well. Depending on what your company does, you will need to constantly think about fixed costs as well as variable costs. While fixed costs, like rent and electricity, remain stable, your variable costs, like materials, can change with output. What you charge for your offerings will have to go toward helping covering those costs, so you will have to work on managing operating costs in addition to your company pricing strategy.
- Have Your Goals Established – Every entrepreneur should have an idea of where they want to be when it comes to various aspects of the business. Whether it’s how big you eventually want your business team to be, what additional markets you’d eventually like to move into, or what kind of revenue you’d like to see, you need something to aim for. Effective pricing strategy should take your goals into account and help you guide just how much you can realistically charge while staying on track to accomplish whatever you set out to accomplish.
These are just four factors of company pricing strategy, but following them will help you create a foundation on which you can competitively price your products in order to establish yourself in your industry.
Even as you keep these particular practices in mind, however, it’s important to know that building an effective price strategy for your company is an ongoing process that needs to be reviewed constantly.
Where You Should Go From There
When you put a business pricing structure into practice, you always want to ensure that things develop in your favor.
That can be done in the following ways:
- Keeping a Close Eye on Profitability – When you build a company pricing strategy, understand that no two months will be the same when it comes to how much revenue you generate. In order to be a capable leader, you need to know just what kind of money your business generates every month and make sure that your services are actually bringing in the kind of money you’re comfortable with. One of the worst things you can do is ignore your financial statements, because the numbers they contain can be very telling about the state of your company’s affairs.
- Showing Some Flexibility – As a business owner, you’ll probably have to show some flexibility when dealing with other companies and your company pricing strategy should reflect your ability to be flexible. Think about things like different pricing structures, introductory pricing, and other variations on what you normally charge. The ways in which your customers will respond to these changes will help you continually shape your practices as you move forward.
- Pacing Yourself – Pricing can often be a game of inches and your company pricing strategy should reflect that. If increasing prices is something you plan on doing, you want to make sure it’s done very gradually so as not to shock your customers. If there is a huge spike in prices, the people whom you serve can and will vote with their wallets and you might end up hurting your cash flow more than helping it, so tread carefully!
These practices will help you stay grounded when developing a company pricing strategy, so keep them in mind as you go forward.
Remember, running a business successfully does not need to be complicated. Keep it simple!
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Manny Skevofilax is a consultant and speaker that helps business owners to make more money by successfully navigating the challenges of growing their businesses profitably. Since 2003, Manny achieves extraordinary outcomes for his clients by using his experience in strategic planning, financial statement analysis, operations, organizational development, and team-building.
Manny can be reached at 410-808-3441 or via email at manny@portalcfo.com.