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Pricing Strategies For Successful Businesses

What to charge for your services and products is one of the biggest issues that business owners face.

The standard response is to under-price in order to beat or be cheaper than the competition.

Your pricing is vital

The fear of losing customers – being judged as too expensive often stops businesses from charging what they should for their products and services.

Charging too little can and does cause businesses to go under.

Often I hear business owners say things like, “I can’t charge more than I already am” or “ if I put up my prices I’ll lose customers“. There’s no doubt that the internet has caused price deflation. It’s so easy and quick to compare prices on line and internet sellers always have an overheads advantage over traditional retailers operating from a bricks and mortar premises.

But when you look around, chances are you will find someone charging more than you are who is obviously thriving.

When it comes to setting your price, there are some simple do’s and don’ts you should always follow.

Don’t lower your price to win a bid.

The price you operate at currently is the price you’ve calculated that will generate the profit you want and need from your business. If you start cutting your prices to win a bid you will always be operating at a margin you’re not really happy with. And what happens when something goes wrong? You won’t have the margin available to put things right.

Understand the impact of promotional pricing

While I’ve said above that you shouldn’t cut your prices to win a contract, that doesn’t mean that you shouldn’t offer promotional deals to win new business. I always encourage clients to offer special offers to win new customers and that they shouldn’t worry about margin on the first transaction. After winning the customer via the special offer, you have the opportunity to build the relationship and add value to the customer so that when your prices go back to normal he is no longer making his purchasing decisions based on price.

However if you intend to offer deep discount pricing on an on going basis, you need to be aware of the impact of discounts on margin and how much more you have to sell to stand still.

As a rule of thumb if you cut your prices by 10% you will have to sell over 30% more to make the same profit.

Do test out different prices and price strategies.

Instead of picking a random price, you must be aware of what comparable products are selling for but remember it isn’t always the cheapest product that generates the largest number of sales or the most profit.

In certain markets customers will equate price with quality. “Reassuringly expensive” sums it up. This gives you the opportunity to raise your prices and potentially increase your sales at the same time.

You should take the opportunity to test out a number of pricing levels and find out which one generates the most profit.

No matter what you do, you must consider your pricing strategy very carefully in order to not only increase your profit but help you stay in business for the long haul.  Don’t be afraid to try out different pricing strategies. Raising your prices just 5% will have a huge impact on your bottom line.