Setting Prices

Setting Prices

How do you set prices today?  Generally, when I ask potential clients this question, they tell me they set prices to match their competitors, only 5% less.  This is a terrible pricing strategy.  As a small company, it is extremely unlikely that you will be the low cost producer of what you sell.  As a result, you will have higher costs and using this pricing strategy, lower prices.  This gives you a lower or even negative profit margin.  I council my clients to do something different and better (your unique selling proposition/business strategy), convince people of your differences and charge a premium for what you sell or do.

The next question I ask about pricing, is what was the last time you raised prices?  It is often 3-5 years previous.  This is also a bad idea because customers expect at least small price increases each year, generally in line with inflation.  If you wake up one day to the fact that your costs have gone up quite a bit, it is very hard to raise prices enough for a couple of years of flat prices without getting some push back from your customers.  So, I generally suggest raising prices at least every two years.  Of course, there might be some items that are too competitive to do even that.

The real question is how do you use pricing to get and keep the customers you really want?  First you have to figure out what are the characteristics of the customers you want, and what customer behaviors you want to help along with your pricing strategy.  In my next post, I will begin exploring this topic.

 

Bryan B Mason

Apollo Consulting Group, Providence, RI

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