How to Price Your Products and Services
Pricing is probably one of the main things small-businesses owners struggle with. What makes pricing tricky is that there is no single sure-fire formula that suits all products, services and markets.
So the question is ‘how do you price your products and services?’ the good news is the answer is not as complicated as you may think.
In this post I share 6 tips to help you price your products and services successfully:
- Price based on your brand positioning
A major factor to consider when pricing a product or service is the position your brand holds in the minds of your target market. As I mentioned in a recent blog-post, you must always think about your brand holistically, ensuring that every element of your brand is singing from the same hymn sheet. Your pricing is an important part of your brand and will affect the way your customers perceive your goods and services.
If you want to position your brand as one which provides high quality, high value products or services, then having bargain-basement pricing will not reflect that desired positioning. Rather, think about where you want to be positioned in the market and what price point reflects that; whether it be mid-market, low cost, or high-end. The key is to decide just where you want your brand to be positioned.
- Don’t Compete on Price
Most new start-ups, especially those entering a completely new market, feel almost compelled to use low-pricing strategies to compete with those who are already established in the market. Don’t be forced to compete on price—unless your brand positioning is ‘bargain basement’—this is a lazy approach that many businesses use to disguise a poor marketing strategy.
Your pricing strategy should not be based on what the competition offers but rather on the value you offer.
Competing based on price not only puts you in a deadlock with your competitors but also erodes the quality of your brand and the perception of the overall industry. If you can clearly communicate the value of your offering with originality—the right customers won’t have a problem paying based on value. Apple, for instance doesn’t compete on price, based on their value proposition—which is clearly communicated to employees and customers—they charge a high price and customers pay this, based on the promise of great value.
- Don’t Over Discount
Discounting is not necessarily a bad thing — it can actually be a great way to boost sales especially in slow periods. Nonetheless, care should be taken not to over discount or diminish returns by offering discounts too frequently. Use discounting strategically, maybe you have a summer offer, old inventories that you want to dispose of—or maybe you want to get a sturdy foothold in a particular market quickly—then that’s fine. However, your products should never be permanently on sale.
Once the value of your product is good then you do not need to use discount as a catalysts for sales. Consider brands like Apple, Audi, and Mac Cosmetics—they rarely ever offer discounts or compete on price—yet still they are among the most successful companies in their fields.
- Don’t Price on Time
It is quite typical of some small businesses to price their products and services based on the time it takes them to execute the job. Though this approach makes sense on the surface it’s problematic. If we think of it—it’s not about the amount of time spent—but the amount of value you are adding to your customers. For instance you may only spend 30 mins on a project but what you produce for your client could earn them thousands.
Pricing should not be based on the time spent on a project but the value added during the time spent.
Don’t fall into the trap of charging based on time spent because it will cap your earning potential, there will only ever be 24hrs in a day. Charge based on value and increase your earning potential.
- Offer Pricing Tiers
In my business model I employ a three tier pricing strategy
- Do-It-Yourself pricing (lowest tier) – e.g. blog posts and self-learning courses
- Do-It-With-You pricing (middle tier) – e.g. coaching, face-to-face training
- Do-It-For-You pricing (top tier) – e.g. marketing management. C
So similar to the tier pricing system I’ve outlined above—my recommendation is that you consider tiered pricing too. It doesn’t have to be the tiers outlined above, but you should create levels of pricing so that work which demands the most from you (in terms of skill and energy) is priced highest.
- Be Confident About What You’re Charging
On a largescale, what I have realized is that one of the biggest barriers to pricing is confidence. You should never apologise for your price—just be clear about why your service is worth what you are charging. If you have spent hours training, if you have lots of experience, and if you’re offering tons of value then you are worth it. Once this value and experience is clearly conveyed to potential customers, most won’t have a problem paying.
Just because someone can’t afford your service doesn’t mean you’re too expensive.
Ensure that you are confident with what you charge because if you are struggling to convince yourself that you are worth it, then others will find it hard to believe as well.
If no one ever tells you-you’re too expensive, chances are, you’re not charging enough. So don’t automatically lower your prices to suit potential customers. Communicate clearly your value and expertise and you will realise great successes.