One of the most challenging aspects of running a small business is pricing. If a nascent company prices its products too high, it’ll run the risk of putting off potential customers. On the other hand, if you price your products too low, there’s a good chance you’ll undercut your own profitability. Here are a few tips on how to reach a healthy middle ground.
What Are Your Fixed and Variable Expenses?
There are certain fixed expenses associated with the operation of your business that will remain the same month in and month out. These include things like rent for the facility your business operates in, payroll, insurance, utilities, legal fees and accounting costs. You also have to deal with variable expenses that will change on a month-to-month basis. Variable expenses include things like cost of sales, office supplies, advertising, mailing and promotional efforts. If you don’t have a general idea what your monthly fixed and variable expenses will be, you won’t be able to price or merchandise at a level that will ensure profitability.
Where Do Sales Fit In?
Another important pricing consideration you need to make before coming to market is factoring future discounted sales. Since there will be instances, such as during a special event or drink commercial sale, when you want to temporarily discount your merchandise, you should make sure that the product is regularly priced at a level that you can apply a discount without incurring a per-unit loss.
Who Are Your Competitors?
In order to determine pricing for your company’s products, it’s important to have a lay of the land. You should closely examine the pricing strategy employed by your competitors, both at the corporate and independent level. It’s also a good idea to look at how consumers view the current pricing paradigm, so take a look at social media data. Doing a thorough analysis of the market as it stands will give you a good idea about how you should position your company’s entry into the market.
Who Is Your Audience?
Are you going to be selling your products directly to consumers? Are you intending to be a wholesaler who brings your products to market with the help of retail partners? Or are you selling to both? Having a clear idea about how you plan to sell your product and to whom will help you know how to craft your pricing strategy, specifically if you need to use tiered pricing and how that will impact your bottom line.
This article was written by Mario McKellop for Small Business Pulse