Pricing strategy is a major consideration – and an ongoing challenge – for many small businesses. Numerous factors are at play when setting a price for a new offering or adjusting prices for existing lines of business. To meet pricing challenges, focus on three key areas.

1. Efficiency:To be successful, you must provide something that represents the “best value.” This means delivering what you offer in the best possible and least costly ways. Take steps to make prices fair to both you and the customer. The first step is to make a careful assessment of internal business processes. Could you improve the efficiency of your procedures? Look at general business functions that don’t directly affect customers. Having cost-effective organizational methods ensures a focus on output quality and customer service.

2. Competition:What are others charging for similar products and services? Comparing your prices to those charged by competitors is essential. If you decide that you offer something extra or distinctive, customers must perceive your added value to justify a higher price than your competition.

  1. Costs:Fixed and variable costs directly affect pricing. Identify them and consider the costs incurred for each sale or service. Service businesses must consider labor expenses for the time needed to complete a project. Derived from these calculations is a price per unit/service that covers both production costs and overhead expenses.

    The old 80/20 rule – that 20% of customers take up 80% of your time – may be an exaggeration but should not be ignored. Several factors must be taken into consideration when developing your pricing strategy. Properly weighing and tracking each of them is essential to getting paid for the work you do.

    Be sure to account for all costs. Your fees should be high enough to recoup all costs for every client. Don’t forget supplies, postage, credit card fees and travel costs.

    Also consider the time spent with a prospect identifying the scope of work and providing a cost estimate. Your fee should ultimately cover this time. Also, consider time spent researching and thinking about the optimal approach to a job. Projects of greater complexity call for greater fees.

    Finally, consider the overall mental anguish some clients burden you with – people who alter demands after the project starts, who fill your inbox with new details and continual status update requests. Track client time history to uncover true costs.

    By appropriately considering each of these aspects, you can bill accordingly and assure optimal earnings from each client.


Source: Gold Gerstein

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