Learn How To Price Your Products & Services
Learn How To Price Your Products & Services
The price you can charge above what is needed to cover overhead is usually not a matter of supply and demand, although traditional economists might try to tell you otherwise. For most businesses, the price charged determines the type of client the business will have, not the number. Usually, changing the price only changes who your customers will be. A low price will attract few customers if you don't offer what they want, and a high price can bring in many if you do.
The price of your merchandise or service tells the customer a lot about what they can expect from your business. A low price often means that customers must serve themselves and that there will be no refunds or returns. In a service business, it implies amateurism and inexperience or, at best, that you're dealing with a start-up. A high price can often mean the opposite.
Prices that are out of line with those of similar businesses need to be justified to customers through added value. Customers will sort themselves out according to the value they want, and those who choose your business will do so because you meet or exceed their expectations. For example, a marketing research consultant who charges $1,000 per focus group research session will be expected to show up twenty minutes before the session to discuss it with the client. Afterwards the consultant will deliver an audio-tape and a one-page summary of the session. The same consultant charging $2,000 per session will be expected to meet with the client for at least an hour during the week before the session, to hold the session in an interview room with a two-way mirror and a video camera, and to deliver a verbal presentation and a five to ten-page summary a few weeks later. The pricing determines the client's expectations.
Pricing is subjective. You have to charge enough to make it a job worth doing - so that it pays for itself. And you can't charge so much that people are put off by the price. Pricing is not that important to a lot of people, particularly with small businesses. People are more interested in quality than price. If you're a good auto mechanic, customers will happily pay you $35 an hour, rather than risk leaving their car with someone they don't know who charges $20 an hour. Unless it gets outrageous, price will not scare people away.
There are three basic rules to follow when you are determining the price for any product or service:
(1) pricing should be easy to understand, (2) the price should be complete, and (3) the customer should have a reasonable number of pricing options.
The price should be complete. Not only should the customer understand how you arrived at your price, but it should also be clear to them that there aren't any surprises. Just recall for a moment the kind of pricing that charges you for every little part. "On sale now! This computer only $599 (keyboard and monitor not included)." What good is a computer without a way to put in data (keyboard) and a way to see what you're doing (monitor)? This is a form of deception, and not a very subtle one. Most of us would much rather see "This computer is only $999 (keyboard and monitor included)." It instills a much higher level of trust.
Last but not least, the customer should have pricing 0ptions. On the one hand, we've just implied that you should lump the components together and tell the truth about the minimum combination that is actually usable. On the other hand, one way to give customers a reasonable number of pricing options is to break the system down into interchangeable parts. The choice is yours and you must find what works best for your business and your potential customers.
Learn How To Price Your Products Services - To learn more about this author, visit Jeff Casmer's Website.
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Some businesses don't have to worry about pricing because there is a market price for their goods or services that can't be modified, such as the price of developing a role of 35-mm color film at a Photo franchise shop, for example. But most businesses have to decide how to price their goods or service and whether it will be lower, the same as, or higher than the market price.
The price you can charge above what is needed to cover overhead is usually not a matter of supply and demand, although traditional economists might try to tell you otherwise. For most businesses, the price charged determines the type of client the business will have, not the number. Usually, changing the price only changes who your customers will be. A low price will attract few customers if you don't offer what they want, and a high price can bring in many if you do.
The price of your merchandise or service tells the customer a lot about what they can expect from your business. A low price often means that customers must serve themselves and that there will be no refunds or returns. In a service business, it implies amateurism and inexperience or, at best, that you're dealing with a start-up. A high price can often mean the opposite.
Prices that are out of line with those of similar businesses need to be justified to customers through added value. Customers will sort themselves out according to the value they want, and those who choose your business will do so because you meet or exceed their expectations. For example, a marketing research consultant who charges $1,000 per focus group research session will be expected to show up twenty minutes before the session to discuss it with the client. Afterwards the consultant will deliver an audio-tape and a one-page summary of the session. The same consultant charging $2,000 per session will be expected to meet with the client for at least an hour during the week before the session, to hold the session in an interview room with a two-way mirror and a video camera, and to deliver a verbal presentation and a five to ten-page summary a few weeks later. The pricing determines the client's expectations.
Pricing is subjective. You have to charge enough to make it a job worth doing - so that it pays for itself. And you can't charge so much that people are put off by the price. Pricing is not that important to a lot of people, particularly with small businesses. People are more interested in quality than price. If you're a good auto mechanic, customers will happily pay you $35 an hour, rather than risk leaving their car with someone they don't know who charges $20 an hour. Unless it gets outrageous, price will not scare people away.
There are three basic rules to follow when you are determining the price for any product or service:
(1) pricing should be easy to understand, (2) the price should be complete, and (3) the customer should have a reasonable number of pricing options.
The price should be complete. Not only should the customer understand how you arrived at your price, but it should also be clear to them that there aren't any surprises. Just recall for a moment the kind of pricing that charges you for every little part. "On sale now! This computer only $599 (keyboard and monitor not included)." What good is a computer without a way to put in data (keyboard) and a way to see what you're doing (monitor)? This is a form of deception, and not a very subtle one. Most of us would much rather see "This computer is only $999 (keyboard and monitor included)." It instills a much higher level of trust.
Last but not least, the customer should have pricing 0ptions. On the one hand, we've just implied that you should lump the components together and tell the truth about the minimum combination that is actually usable. On the other hand, one way to give customers a reasonable number of pricing options is to break the system down into interchangeable parts. The choice is yours and you must find what works best for your business and your potential customers.
Learn How To Price Your Products Services - To learn more about this author, visit Jeff Casmer's Website.
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Kim CastleWith nearly two decades in the advertising and design business, with clients like Domino's Pizza, General Motors, Direct TV, Pedigree, Wolfgang Puck, Higher Octave Music, Hollywood Celebrity Products, Disney, and Paramount, as well as thousands of entrepreneurs around the world define, structure, communicate, and position their business for greater profits, BrandU(R) co-creators Kim Castle and W. Vito Montone discovered that entrepreneurs could experience the same power that big brands command for a fraction of the cost with the world's only process-based results-drive Integral approach to business creation. BrandU(R) is helping entrepreneurs grow with the power of extreme clarity from idea...to brand...to market(TM) and helping one million entrepreneurs become successful and whole so that they can make a difference in the world. Are you one of them? If you want to experience clarity all the way to the bank(TM), get started now at http://www.brandu.com. - Visit Kim Castle's Website |
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Dianne CramptonDianne Crampton is an executive leadership coach, team culture consultant, author and president of TIGERS Success Series, Inc. Dianne has been helping CEO's and Executives connect their employees to their core values and goals for over 20 years using the trademarked TIGERS team culture process, which stands for trust, interdependence, genuineness, empathy, risk and success. To download a free white paper on behaviors that build strong teams and behaviors that will predictably tear them down go here. Dianne's contribution to the 2010 Pfeiffer Consulting Journal (an imprint of John Wiley and Sons Publishers) entitled TIGERS Hearted Teams is available in November 2009. Her new book TIGERS Among Us: 5 Winning Business Team Cultures And Why, Three Creeks Publishing will release in March 2010. To receive publishing discounts, subscribe to the free TigerTracks Newsletter here. - Visit Dianne Crampton's Website |
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Joe DagerJoe Dager is President of Business901, a progressive coaching company providing no-nonsense direction in areas such as Lean Six Sigma Marketing and organized referral marketing. What others say: In the past 20 years, Joe and I have collaborated on many difficult issues. Joe’s ability to combine his expertise with “out of the box” thinking is unsurpassed. He has always delivered quickly, cost effectively and with ingenuity. A brilliant mind that is always a pleasure to work with.” - James R. If you want to learn more about Business901, start a conversation with us. We can be found @ Web/Blog: Business901.com Web/Blog: FundingYourNonprofit.com LinkedIn Profile Follow me on Twitter - Visit Joe Dager's Website |
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Linda RichardsonLinda Richardson is the Founder and Executive Chairwoman of Richardson, a global sales training and performance improvement company. As a recognized leader in the industry, she has won the coveted Stevie Award for Lifetime Achievement in Sales Excellence and she was identified by Training Industry, Inc. as one of the “Top 20 Most Influential Training Professionals.” Ms. Richardson is credited with the movement to Consultative Selling and is the author of ten books on selling and sales management, including Sales Coaching — Making the Great Leap from Sales Manager to Sales Coach, and Stop Telling, Start Selling. She teaches sales and management at the Wharton Graduate School of the University of Pennsylvania and the Wharton Executive Development Center. Linda is a frequent speaker at industry and client conferences, has been published extensively in industry and training journals, and has been featured in numerous publications, including The Wall Street Journal, Forbes, Nation’s Business, Selling Power, Success, and The Conference Board Magazine. Learn more about Richardson's sales training and performance improvement solutions at http://www.richardson.com web - Visit Linda Richardson's Website |
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