1. Don't forget to factor in your own time
It’s a common mistake for businesses to count the costs of raw materials/stock but not think about the hours they will spend on it, and therefore under-price their product. Work out an hourly rate for your time that you’re happy with, and calculate that by the number of hours you’ll spend to give you a cost to add on to your cost spreadsheet. Your time is valuable so make sure it’s a key part of your pricing decision.
2. Think about your break-even point
Your break-even point is the point when your revenue is equal to your costs. You need to go beyond that to make a profit. To do this, it’s important to understand the costs you’ll incur so the product/service can be priced appropriately, and the costs involved with starting your business.
3. Research the competition
Do some competitor research to see what your competitors are charging for a similar product/service. Aim to come in roughly the same unless you’re offering a significantly better offering. If what you’re offering is new, try and find broadly similar products/services and cost based on that.
You also need to assess how high demand might be, by understanding the size of your target market, your competitor landscape, and customer intent. If you’re not sure of the size of your target market or who your competitors are, have a look at the Business Gateway market reports or commission a free report via our research service.
4. Cheaper is not always better
It’s generally not a good idea to undercut your competitors, as your potential customers might perceive your product/service is not as good quality as your competition and that may do more harm than good in the long-run. It may be tempting – especially at the start to get customers through the door. However, if you adopt this approach, there will come a day when you have to put your prices up, and customers don’t appreciate that – they’ll vote with their feet. Focus on pricing that reflects your costs, your value, and meets the needs of your target market, rather than racing to the bottom.
5. Offer special offers as part of your launch campaign
It can be a good idea to offer special deals for first time customers where they’ll get a discount or other incentive. This can be a good way to build up your customer base, but make sure it’s obvious that it’s a special offer discount as you’re starting up.
If you have a service, you can offer a free taster session, again as a way of attracting new customers but always make sure they know it’s a one-time offer.
6. Monitor your prices
Your pricing must work for your business, and the prices you set now, may not always be appropriate. It’s important to keep an eye on your pricing and on what's going on in your business and the wider market. Have your competitors altered their pricing? Have the costs of your production changed? Are the prices you set still competitive and working for your business?
Also closely monitor customer satisfaction levels and any feedback customers have on pricing.
Making changes to pricing shouldn’t be done lightly, but as a considered strategy and in response to business need. Before changing prices consider customer perception and demand, competitor prices, your business costs and goals. Any pricing changes should be communicated clearly.
7. Be transparent
Customers don’t like surprises. If it’s appropriate, put your prices online so they can see exactly what they’ll be paying for.
If you get your costs wrong or things change and you need to adjust them, explain why the price has changed and the rationale behind it. Customers will understand if they know why something has changed.
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