Money & Finance
Ask SCORE                                                                        Word Count 430

Set the Right Pricing Strategies for Your Business

Setting the proper prices for your small business products and services can
be very tricky. Some business owners think they have it down. But after
reviewing costs, expected profit, what competitors charge and what they think
customers will pay, it becomes more complex.

Pricing too low can cut into your profits, while overpricing also can hurt your
business. Finding just the right balance between all of the factors involved is
more art than science.

A common misstep—especially in the early stages of a business—is pricing
too low in order to attract customers. While special deals can work in some
cases to start the ball rolling, going low is not always the best path. Low prices
can draw customers interested only in price. They are the ones most likely to
abandon you the moment they find something even lower elsewhere.

Selecting excessively low pricing levels to attract clients is even more
dangerous for service businesses. You only have so many hours to sell. Your
business can’t make it up in volume like a retailer who still profits from lower
prices if volume is high enough.

Pricing is partly psychological. You will want to set your levels according to the
perception of your product or service “brand.”  If you want to be in the premium
neighborhood, your pricing can be higher to match an upscale image. Pay
attention to price points.  They differ widely by product and industry.

Pricing is an ongoing process, so test your pricing periodically. You may need
to adapt to changing conditions. Competitor prices, your own costs, customer
perceptions and your profit expectations can all change.  Or you may want to
simply test different pricing levels to see what works best for your business.

Research the norms for your industry, including price ranges across the
country if you sell nationwide. You may want to charge more or less,
depending on your brand positioning.

No pricing strategy is complete unless you know with as much precision as
possible what your own costs are to deliver the product or service. Don’t
guess. Price it out to the penny and include all of your overhead costs, both
direct and indirect.  You should know exactly what you have to do in order to
earn the profit you want.

To learn more about pricing, contact SCORE "Counselors to America's Small
Business." SCORE is a nonprofit organization of more than 10,500 volunteer
business counselors who provide free, confidential business counseling and
training workshops to small business owners. Go to www.scoredm.org on the
web or call (515) 284-4760 between the hours of 10:00 A.M. and 3:00 P.M.
Monday through Friday.