Today’s lunch is another collection of pricing thoughts. This time though they are contained in this interview I did last week for The Finance Quarter on the ABC’s News24 channel. The interview is only about 4 minutes long so it's quite watchable, but if you're in a hurry, the highlights are below:
How you do it: 8 pricing thoughts
Here’s a summary of the important bits from the interview:
- Many small businesses underprice. I say this a lot, but it’s true. Don't be one of them.
- There are three areas you have to consider when you’re setting your price: your costs, your customers and your competitors.
- It sounds obvious but check that your selling price is above your cost.
- Cost isn’t just the price you paid for the goods, but also the cost of distributing them, handling them etc. I also add a bit in for marketing and selling the goods. The higher you calculate your cost to be, the better, that way you’ll force yourself to charge a higher price.
- In terms of your competitors, you need to work out where in the hierarchy you fit. For example ice cream comes at a very low price of a dollar per litre, all the way up to over $15 per litre, if you were ice cream, where would you fit in that band?
- In terms of customers, you want them to feel that they’ve got a good deal. That means they need to feel like they’ve paid a little less than their maximum price. Not easy but you need to check out other (non competing) products your customers buy to see what sort of value they put on stuff.
- Discounting is dangerous because you have to sell so very much more in quantity just to stay in the same place on profit. If you want to know more about discounts here’s an article
- If you sell something that’s indistinguishable from what your customers sell, don’t try to beat them by selling at a lower price as this will just get you into discounting trouble. Instead try to make the experience of dealing with you so fabulous that people would rather pay a wee bit more and buy from you. Examples here include fantastic customer service if you are an online business, having a reputation for speedy deliveries, no hassle returns etc. All stuff that shouldn’t cost a lot to do, but is hard work, which puts competitors off doing it!