When you’re first starting out as a new business, how do you know what price to charge for the products or services you offer? You want to make a profit, that’s why you started a business, but you also need to be realistic in what you charge, otherwise people might not buy. It’s a tricky balance to master between covering costs and making a profit if you want your business to grow. Here are some tips on setting the right price for your products or services:
- Consult your Business Plan – Obviously, you started a business in order to make some money. Consider how pricing will affect your ability to grow and expand your business and plan accordingly.
- Understand your Costs – As you should well know, it costs money to make money (or a product or to provide a service). It’s not enough to cover your costs; in order to survive and grow as a business, you need to factor in profit, too, after costs. Costs go deeper than producing the product itself. You probably have to pay rent, pay employees, and pay suppliers, among others. All of these will affect the price you charge for your product or service.
- Look at your Competition – Chances are your customers are too. If the products your competitors offer are similar enough to yours, you can probably base your prices off what they charge. If you offer the same product and then some, that is an additional service or a higher quality product, then you can bump up your price a little. It is good practice to compare the net prices as opposed to the listed price.
- Know the Market – Research and study outside factors that influence the demand for your product. These factors are fairly flexible and can range from the price of the materials you use to produce your product, to a change in the taxes or income levels your customer base can expect in the near future, either lower or higher. Again, you should research your competitors’ trends as well.
Choosing the right price for your products and services can mean the difference between making a reasonable profit and robbing people blind / being robbed yourself. Know the products or services you offer, or rather what your competition is charging, and see if you can match or beat those prices while still making a profit.