Pricing your products and services is one of the hardest things for a business owner to do. It’s not hard physically, but mentally. It is the one thing that can make or break your business.
Pricing is not a task; it’s an art. In order to do it properly you have to be very in tune with your business and your industry. It is a calculated process. You can’t guess at it. With the right calculations you can increase your profit margin and your bottom line. You just need a little strategy.
Strategic pricing is the process of creating a plan that will allow you to generate enough money to cover your costs and still make a profit. This plan will allow your business to grow and prosper on purpose and by design. It’s comprised of several strategies but here are the top three for service based business.
Create a budget.
Creating a budget is a necessity to the success of any business. I always say you have to know your business before you can grow your business. And knowing and understanding your numbers is the key. Creating a budget forces you to look at all of your costs and what you’re spending money on. It should be broken down by month so you can see how your costs fluctuate, meaning when they are up and when they are down. Once you have all of your expenses listed, add them up and divide by twelve. This is the minimum amount of money you need to bring in each month to stay out of the red. For me this is the first step to accurate pricing and where most business owners fail because they never look at their costs. They assume what they are charging will be enough to cover all expenses. But rates is rarely enough when you determine your prices blindly.
Price your worth.
Value based pricing is the process of pricing your products or services based on the value of the result that you believe potential customers will receive. It does not factor in the actual costs to run your business or any historical pricing that others in your industry have charged. It is supported by customer experience, reviews, testimonials, certifications, awards and accolades, and word of mouth.
While it’s not based on costs, like when you create a budget, you should still make sure these costs are covered. If this is your first time doing value based pricing, an easy way to do it is to determine your monthly spending and then mark it up by at least 1.5 times your costs. The ultimate result of this strategy is that your profitability will increase while your sales volume will remain the same. And as long as you deliver on your promises, customer will be happy and refer you – which will put you in high demand.
Create varied targeted pricing.
Varied targeted pricing is a strategy that has helped many businesses not only grow – but scale. This strategy is the process of pricing your services based on a type of service, how the service is packaged and/or the location of your target market. Often times you can break your service into 3 tiers – economy, mid-level and high-end.. The goal of this strategy is that you have something for everyone. Regardless of who your target market is, everyone can’t play at every level. By offering multiple levels of service you increase your chances of getting more sales, while also diversifying your revenue.
Need help pricing your services? Request a consult at www.nitramfinancial.com.