News

Pricing Tactics and Truths

Many times, new business owners have a tendency to under price their merchandise or services. Perhaps this is because it’s very difficult to calculate or add-up many of the “hidden costs” of doing business. Hidden costs are those costs which are not obvious, costs which arise only after a period of time. An example might be the annual insurance premiums or miscellaneous taxes or high wear and tear on equipment. Not accounting for these hidden costs in your pricing eventually begins to create a financial hardship on the organization. Thus, for the long term viability of your business, correct pricing of your goods becomes extremely important. Here are some useful facts about pricing and your business:

•Small businesses can’t compete solely on the basis of price against the big competitors. They must create added value to the product in order to command a higher price.

•What the business owner pays for something should not be the overarching factor of what they sell it for. Some businesses seem to simply “keystone” price (100% markup/50% margin) everything without regard to value. Some items in your inventory have more value than this, others don’t. Price on value.

•86% of consumers buy from people who provide solid reasons (benefits and value) to buy. Only 14% of consumers buy solely based on price.

•Most business owners begin to offer discounts on their products or services as the first reaction to buyer resistance. A better tactic is to build value into the sale by increasing service or quality of the product and maintain your price and profit margins.

•If 20% of your customers grumble about your prices, you’re about average. If more than 20% grumble, you may be too high. If no one grumbles, you’re too low.

•For the 20% that grumbles, explain that it’s unwise to pay too much, but it’s worse to pay too little. When you pay too much, you lose a little money, that is all. When you pay too little, you sometimes lose everything because that which you purchased was incapable of performing its intended use.

•Never take price objections at face value. Ask probing questions until you find the real reason, deal with it and move on toward the sale. Probe these areas:

•Do they mean that your product or service really isn’t worth what it costs?

•Do they mean that they can buy the product cheaper elsewhere?

•Do they mean that they simply can’t afford your product or service?

•Do they mean that they aren’t ready to spend that kind of money yet?

Profitable pricing requires understanding how to integrate hard data on costs with soft judgments about customer and competitor response to maximize profitability. Your meeting with a TVCC BizCenter advisor will provide you with industry and consumer data that will provide you with a rigorous basis for making pricing and marketing strategy decisions. Call the BizCenter at (541) 881-5762 to schedule your customized business advisory appointment.