Pricing is one of the four major components of marketing and sometimes it can be quite a challenge to set the perfect price for your products or services, especially in a competitive niche.
However, your ability to pick the perfect price can be the difference between success and failure of your business.
Common Price Setting Mistakes
One of the most common mistakes people make especially in the service industry is trading dollars for time. Doing this will always limit your income to the number of hours you work in a day, a week or a month. This is very frustrating and you need to break free of this trap.
The truth is, to pick the perfect price you have to consider certain factors like cost, quality, demand, market trends, competitor prices, and so on.
How you assemble all the data to find the perfect pricing model for your business is the next step. Using specific software tools to determine the best price for an item is usually the quickest route.
Ways to Pick The Perfect Price
One of the most effective ways to set yourself free from trading dollars for time is to begin establishing your fees based on value. At the end of the day that is precisely what service professionals are being hired for; to offer value to their clients.
1. Hourly Rate
Calculated as Desired income level divided by potential hours of work.
Although people often make mistakes with this method, it’s still the most common way of setting prices because it often strikes the right balance between a business and its employees.
2. Going Rate or Competitor Pricing
This is the second most common way of picking a price, that is setting your prices relative to your competition.
This works well for well-understood products and services, where buyers make purchase decisions by comparing prices.
3. Cost Plus
Adding a standard mark up to the cost of the product or service. In other words, set your price based on a margin.
However, services have a very low cost, so it’s hard to justify your pricing based on your cost, so this is most suitable for tangible products instead.
If there are other costs such as advertising, transport etc you should include them too,
Determine what the buyer perceives as the value of the product
Price set in proportion to a larger project/product/sale
This is mostly used for contractual work, milestone achievements etc.
6. High Demand
If there is a high demand for your product or services then you can set a higher price.
However, when assessing demand, make sure you are doing it from your market’s viewpoint or else you risk sending away your customers to your competitors.
7. Scarce Supply
This is the flip side of the supply/demand balance.
Is your product so rare that consumers/buyers can’t do without or get the same value elsewhere? In this case, it’s more valuable, and hence you can charge a higher price.
This is particularly true with rare vintage and limited models of sports cars, jewelry, art etc.
Are you well known, liked and trusted as an expert as an expert in your niche? As with any other marketing, when you’ve established a reputation as an influencer, you can generally charge a higher fee.
9. Brand Value
First of all, establishing a brand value is no walk in a park. Sure! In this internet age, you might get lucky and your work goes viral and you pick up from there.
However, building a high brand value requires longevity, good reputation, quality of service or product, etc.
Once your brand is perceived as high value, then charging higher prices will be easy.
For example, if you had the option to buy a Rolls Royce or a Mercedes Maybach which will you go for.
Of course, the Rolls Royce right? Why? Because of the brand value and prestige that comes with it.
Have you ever been to the supermarket and you see two similar cartons of cereal one priced at $5 and the other at $4.99. you will most likely pick the one at 4.99. why? Because psychologically we only consider the first digit or the Dollar amount.
Pricing your product or service this way is good if you want to snatch your competitor’s customers.
here’s what I mean if your competitor charges $5 for a T-shirt you charge $4.99 for the same T-Shirt.
Bottom line is, you need an effective pricing strategy if you don’t know how to decide, hire a consultant. See more information on competitive pricing strategy.