How To Avoid The Pitfalls of Pricing
Whether you have an ecommerce brand, a retail store, are a service based business or produce handmade products from home, setting the correct price for your services or products is a strategic decision that will affect your business. Many of us know how much money we want to make in our business and the process of getting there through our offerings depends on a number of things including our target audiences willingness to buy what we offer at the price we set and our available inventory, time or resources. The end result should be a business that is able to pay it’s employees, invest in replenishing existing products and on product development and has the capacity to spend on marketing and advertising.
Having the right pricing strategy is even more important when you’re operating solo.
It’s very possible to get the right product to the right customer at the wrong price and not know it until you lose faith and joy for your business. It’s taking more than it gives - time, energy and money. Avoid that! Here’s a few tips to help you maneuver through your considerations around pricing so you can hit the ground running and continue to reinvent yourself and business strategy. Avoiding the pitfalls is a conversation of strategy, research, data and yes, trial and error. For now, let’s start here:
Establish your COG (Cost of Goods) - Know exactly what it cost to produce a product or offer a service. This includes evaluating and factoring in the costs of ingredients, time, labor and resources/equipment used. The goal is to be profitable so you’ll never do that if you aren’t considering what it takes to operate and sell. Your prices should leave you enough room to offer discounts while still making some profit. Calculate your COG for every single product and price it accordingly.
Set sales and revenue goals (monthly/yearly) - Issues with sales and revenue can very well be directly related to brands never taking the time to set goals, and take the steps that are directly connected to meeting them such as generating new customers, consistent communications and content. If you know what it costs for each product you’ll be able to set goals around the different offerings outlining just how many/how much you want to sell each month and year. Doing this will help you see how much energy you’re giving your business to meet your own goals!
Know Your Worth - Do we even have to go over this? Yes. Yes, we do. Every day and twice before bed! In the beginning, somewhere in the middle and especially when you feel like you’re reaching your end, it’s easy to compromise your values and at times, lower prices JUST to get business. Doing that is the quickest way to needing to ask yourself “Why am I even doing this?” Worth isn’t just about getting paid, it’s about accepting the right business at the right pay and feeling good about it.
Barter! - I know this isn’t exactly obvious in a conversation about Pricing because no money changes hands when you barter your skills, or services. But! Bartering can help you overcome what you may feel are barriers in someone else’s pricing. Keep in mind, the individual or business you’re bartering with has to want, needs and find equivalent value in what you have to offer - but, it’s worth asking, respectfully of course. That said, be prepared to compromise or shell out some money. Bartering is a blessing if used with complete respect and appreciation for what other’s do.
Raise Your Prices! This is a tricky one because raising pricing can at times affect your target customer and force you to include a new ideal customer in your marketing mix. But, for double digit increase it could be worth it. Be mindful of your communication strategy when you do decide to go this route and consider offering loyal clients/customers discounts or rights to exclusive pricing.
Either way, it’s VERY important to be open to changing even if it means you’ll need to adjust. A great way to raise prices without offending your tried and trues is through product development, introducing new products with higher price points and new services/products that compliment existing ones to increase AOV, or engagement with current customers/clients.
Price Correctly From The Jump! If you know what others are charging in your industry don’t try to be a hero. It generally doesn’t end well, and if you plan to be a martyr, stay true to your reasons for being so affordable when you’re wondering if it’s worth your time or eyeing your bottom line. Going back to #1 on this list is a great way to see what’s worth your time, and what your time is worth. Research likeminded brands and don’t make drastic adjustments to your pricing to be competitive. You’ll only end up having to work harder to make up the difference. Over time you can make slight adjustments such as a 5-10% increases without shocking your current clients. If you find yourself doubling price points… you came in too hot ORRR you’re getting hotter! :)
I can dig the latter. :)
KNOW Your Position. Know the value of your inventory and services for a set time period, and be realistic about how you’re looking at this alongside your schedule (time) and marketing efforts (potential reach). Don’t plan to make $25,000 month if you don’t have the time to invest in making it happen, or the discipline. Be realistic. If you know you’re efforts should be enough to generate $10,000 in revenue per month, start there and build out a plan where adding more inventory, services or resources will double that.
Earn the right to charge MORE - I’m sorry in advance because this statement may offend some business owners who are just started out and others to question their worth. It’s very easy to get distracted from what you do when you worried about getting paid well for it. But, confidence through training, experience and education will help you justify the prices you charge. If you want to make more money, invest in yourself so you can offer new services or provide additional benefits on the services you already have.
What has been the biggest challenge you’ve faced in your business related to Pricing? How did you overcome it? Leave a comment and share!