When starting your own business, defining your pricing and payment structures is incredibly important, and difficult. These prices attract customers to your business, provide revenue, indicate your value, and help build sustainable relationships. So what is the best way to approach this process? Here are some tips to define a sustainable pricing strategy for your small business.
Whether you are selling products or services it is important to understand the market you are entering into. Do research into similar businesses and see how your competitors are approaching pricing. Identify your target audience and take note of their behavior. Pay attention to current events that may impact customer behavior (pandemic, recession, etc.) as well as trending news within your industry. You want pricing that portrays value and convinces customers to purchase. Going in uninformed can result in low sales and a lot of stress. Pricing will always have to be adjusted, however it is better to go in with a solid plan that you know will lend itself to success. Take the time necessary to run trials and gather feedback. This will help ensure that your strategy is the most effective for your business.
2. Consult with your team
Before settling on a strategy, consult with your team to see if they have any input. Members of your sales, marketing, and operations teams will be able to pull from previous experience to help guide this decision. They may bring forth an idea that was previously overlooked or might provide additional insights regarding the market and consumer behavior. Talk through your ideas, and brainstorm the best ways to approach next steps.
3. Be prepared to change
While your pricing strategy may be strong at the start, chances are it is going to change down the road. This doesn’t indicate failure on your part. However, the economy and the market are always changing and your business may have to adapt to compete. When it comes time to change, adjusting your pricing will be a lot easier. Look back on what has worked in the past and use your previous experience to improve moving forward. Since you are no longer starting from scratch, developing new strategies will happen more efficiently, and with more ease.
4. Consider Costs
When developing your pricing strategy, you have to consider your business costs. Every business has production, labor, and advertising costs, amongst others. Make sure that you are establishing a pricing plan that will generate enough revenue to cover these costs. You want to attract customers, but not at the expense of your business. If you are a new business, you most likely won’t be making much surplus starting out. However, you will learn what strategies work and begin to understand your customers behavior and purchasing habits. All this information will be valuable moving forward.
5. Align your strategy with your mission
Finally, align your pricing strategy with your mission. If your company has a more socially driven mission, then offer discounts, programs, or specified pricing tiers aimed at helping certain groups or consumers that you wish to target. For example, if your business is in a lower income community, and part of your mission is about giving back or uplifting community members, you wouldn’t want to set ridiculously high prices. Keep in mind the community you are serving and ensure that your strategy is reflective of your company’s goals. This will help you remain authentic, as well as build sustainable relationships with your customers.
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