05 Mar Managing Your Pricing as a Small Business, Without Going Bust
Pricing. It’s a headache for sure, especially if you’re a smaller, owner managed business working with small businesses. Price is a sensitive issue, and sometimes it can feel like you’re stuck in a race to the bottom that you will never be able to win. Price yourself to high and you’ll struggle to find customers. Too low and you’ll end up running yourself into the ground for a pittance. So you need to find the middle ground – the ideal spot where you can sell the right amount to the right type of customer, and still leave room to grow.
Unfortunately, it’s part art and part science, and there is no one right answer. So we won’t try to give you one. Instead, we have a few tips that will help you navigate the pricing waters and hopefully come out on the other side happy, and with a nice number of customers to show for it.
Getting the Right Price Point
The first challenge facing any new business is how to set their prices. Actually, this issue comes up with established businesses too, whenever they introduce a new product or service. But when you’re first starting out, trying to work out how much to charge can feel impossible, and it doesn’t help that there are a variety of different pricing strategies in business, and what works for one business may not work for another. For example, you may want to package your products or services, sell them all separately or set prices based on an ad hoc model. Whatever you choose, you should make sure you:
Do Your Research: The most important part of the pricing process is knowing your market, so do your research. Understand what your market can afford, what they would expect to pay and what they would be willing to pay for products or services like yours. This will help you find the ‘sweet spot’ for your market. You should also check your competitor prices so that you can decide whether to beat or match them.
Choose a Technique: There are a few techniques to pricing. For example, cost-plus pricing involves adding a markup percentage to costs, whereas value-based pricing is determined by how much value your customers attach to your product. Do some research and decide which approach is most suitable for your products before you settle on what to charge.
Consider Other Factors: There are some hidden factors you might not have considered. For example, will you need to register for VAT, and how will that impact your pricing? Will you be able to keep the margins modest on some products to achieve higher margin sales on others? Will you need to create different prices for your services depending on territory or industry type, or how those sales arrived with you?
Managing Price Rises
Of course, as your business develops and grows, you might (strike that, you will) find yourself faced with a dilemma. Your prices aren’t right any more. In fact, they were probably way too low to begin with. So now you need to put them up. You might have known this for a while, but been too worried about losing customers to follow through with it. Now, you can’t just increase your pricing one day, send out new invoices and carry on as before. That is how you lose customers! Instead, you need to manage that process within your business, and more importantly with your clients. Luckily, there are a few things you can do to ease the process of price rises, and keep your clients happy as well:
Understand Your Customers: There are at least 4 ways a customer can react to a price increase – they can downgrade their service to something within their budget, they can use your product or service less often, they can accept the higher rates and carry on as before, or they can stop using you altogether. Having worked with your customers for some time, you should be able to gauge how you think the price increase will affect them, and put measures in place if you need to. For example, you could offer your longer-term clients with a limited budget the change to stay on the old pricing structure for a set time, or offer a more gradual price rise.
Reinforce the Value: In the run up to your price rise, invest in some marketing and PR for your business. Instead of generating leads, focus this campaign on reinforcing the value of what you provide for your customers and its relevance to their business or life. By doing this, you reinforce your brand in their minds, remind them of the reasons they buy from you and motivate them to stay with you when you increase your rates.
Give Plenty of Notice: In product based industries, prices change rapidly and consumers are used to it. It’s just something that happens. However, in the service-based industries, it is less frequent, so if you’re planning a price rise, ensure you give your customer’s plenty of notice. This helps them plan for the increase and get in touch with you to talk through options if they need to. It also means that you have the chance to retain more customers, instead of losing price-sensitive buyers to a knee-jerk reaction.
At Starfish Admin Services, we are more than just a VA service. We’re a valuable sounding board for your business, helping you generate new ideas and solve problems. We’ve worked with businesses and individuals from all walks of life over the years and come across our fair share of issues, so we can use all of that experience to help you make the right decision for your business, and get some of that valuable time back too. If you want to chat through price rises, or any other aspect of your business, just get in touch with us today and see how we can help.