Getting your pricing right is one of the most important aspects of your marketing strategy because your pricing creates an immediate perception in the market of the value of your product or service. A price set too low may generate a lot of interest from 'bargain hunters' who may not value your product or service. A price set too high may lose customer interest altogether.
At Trinity, we've helped many businesses formalise their pricing structure to achieve profit margin growth. Here are our tips on how to develop the right pricing strategy for your business.
Whether you're a start-up or an established business looking to expand, understanding your business objectives will help you to determine the right price point for your offering. Your objectives may be one of the following:
Once you've determined what your objective is, all your decisions going forward should link back to this.
The cost of providing your product or service includes all of the things involved in producing and delivering your offering, which may include rent or lease payments, raw materials, process and packaging, transport, storage, payment processing fees, staff wages, agency fees, utility costs etc.
If you're a service business, you'll need to determine a reasonable hourly rate for your time. Consider not just the time you spend actually doing the job, but the time it takes to quote, research, travel, invoice and do any other administrative tasks that are required to complete the job at hand.
Before you go ahead and simply set a price, there are two things to consider: What does your competition do? And what will your niche market think? The price you set needs to be realistic for the market, not simply reflect how much you hope to earn.
You'll need to learn who the competition is, what they offer and what they charge. This is a really important exercise because by learning more about your competition, you can determine what your unique selling point (UPS) is which makes you different to your competitors. Not only will your UPS help you attract leads, but it will also help to reduce purchase resistance.
It's also important to know what potential customers think they should be paying for your product or service. It can't be more
than what they are willing to pay because you'll miss out on potential sales. It can't be less, because you'll miss out on
potential revenue. You'll need to do your research on the market to ensure that they are willing to pay for quality and are not just
searching for the cheapest price.
While discounting has it's place in some pricing strategies, unless you have a massive supply chain advantage like Costco or Kmart, it's highly unlikely that you can offer the cheapest price and execute it in a way where you can sell enough volume to make that business model work. Don't forget, there is always someone else willing to sell their product or services for less than you!
You need to focus on delivering a lot of value at a fair market price.
When thinking about your pricing strategy and your unique offering, you'll obviously need to consider all the strengths that you bring to the table. But in doing so, you also need to be honest with yourself about your weaknesses.
To help you determine your strengths and weaknesses, you should develop a SWOT analysis on your business. A SWOT analysis is a critical tool used for strategic planning, which will help you to determine the internal strengths and weaknesses of your business, as well as any external opportunities and threats in the market.
With a world of knowledge at our fingertips, feedback and experiences are shared and received more readily than ever before and this makes for very savvy buyers. If your product or service falls short of your promise, your market will soon hear about it.
If 2021 has taught us anything, it is that we need to be innovative in a transposing market, so when evaluating your pricing strategy, also look to see where you can fix issues, make improvements, or add value to your product or service offering. To create loyal and happy customers, focus on the things you do exceptionally well.
Hone in on your greatest strengths and polish your offering.
Now that you are confident that you can offer the right product or service to your niche market at a reasonable cost, you can now consider what pricing strategy is right for you. Don't forget to align your pricing structure with your business goals and objectives.
There are dozens of pricing models and strategies that can help you better understand how to set the right prices for your audience and revenue goals. Many pricing structures are developed to suit a particular industry or business type. Some of the most common pricing structures include:
Aside from your pricing structure, you might consider what else you can offer to help get customers over the line. For example:
These additional strategies can help to set you apart from your competitors and increase sales conversions.
Tiered offering is essentially based on the 'Good Better Best' concept. This approach offers prospective customers three or more pricing options, each offering varying degrees of value and inclusions - so that may be a very basic starter pack, a 'popular' intermediate offering and an ultra-high ticket offering.
Tiered offerings are an extremely effective way to increase sales because it allows customers to 'self-select' the amount they wish to pay in exchange for the value they receive.
There has been a considerable amount of research developed on the topic of 'Good Better Best' which has shown that customers are more likely to pay more money when offered tiered pricing because it allows them to see what additional value they can get for their money.
By providing a tiered offering, businesses can increase revenue streams by serving more customers. It also presents the opportunity to upsell your offering over time and increase the lifetime value of your customers.
Once you've done all your research and you've decided your worth, it's really important to hold your ground on the price you've set. After all, if you don't truly believe that the price you are asking is fair, then you can't expect your customers to feel the same.
Customers who recognise quality and are willing to pay for it, are more likely to remain loyal. Don't be afraid to set a price that reflects the value of your unique skills and experience, then stand firm on your price and serve only those who truly value your offering.
A good accountant or business advisor can help you to determine the right pricing strategy for your business.
Trinity Advisory is not just an accounting firm, we specialise in Business Accounting and Coaching for SME's. If you’re a small
business owner who needs help developing your pricing strategy, crafting your unique offeirng, scaling your business and growing your
profits, then get in contact today to learn more about our Business
Accounting and Advisory packages.