Helping Entrepreneurs Win


Is there a never-fail formula for getting pricing right?

Amdin1 | On June 15, 2017

The bad news is that, unfortunately, there is no sure-fire success formula for setting prices. The further bad news is that if you get your pricing wrong, your business could fail. The good news is that there is a fact-finding approach you can take which will set the foundations for your pricing strategy. There is also a checklist you can follow of dos and don’ts. An additional items of good news is that if you get your pricing right, your business could prosper for many years to come.

Pricing is such an emotive issue in business because it’s one of the toughest things to do. You need to combine research, analysis, logic, testing and thorough thinking with gut instinct and having a feel for what will work in your marketplace.

So start with the facts and here is a 4-step plan for doing that.

  • Work out your costs. Fundamental issue number one when it comes to pricing is this: exactly how much does your product or service cost to produce? Remember that costs include more than just the cost of the item, but also includes overheads such as rent. Include your fixed and your variable costs. If X is your costs and Y is the profit you want to make then, your price is X + Y.
  • Research your competition. Ascertain what comparable companies are charging. It is very likely that your customers will be comparing prices so you will put yourself at an extreme disadvantage if you do not arm yourself with this same information.
  • Research your customers. How does price figure in the decision-making process for your customers? Are the people in your target market budget sensitive, seeking convenience or concerned more about quality and status than price?
  • What does the future hold? Are there any technological, societal, political or economic factors which will affect prices in the future? Also how will your competitor respond to your pricing?

When you know where you are, then it’s time to pick a number for your prices while taking the following dos and don’ts into account.

  • Do consider the marketing perspective because pricing is both a marketing and a financial decision.
  • Don’t commoditize because commoditized products and services have thin margins and are sold on the basis of price and not brand.
  • Don’t make your pricing structure complicated. There’s an old saying that “the confused mind always says no” and that’s particularly true when it comes to pricing.
  • Don’t just focus on price but make sure you emphasize the value you offer. Explain why your prices are what they are.
  • Do show how your pricing policy differentiates your products or services in some way.

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Mac Attram
CEO & Founder

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