One of the keys to success in small business is giving customers what they want. Steven Strauss, author of the book The Small Business Bible, said today’s customers want bargains.
Pricing products and services has always been a challenge for small business owners. Low prices may attract customers initially, but they will often go elsewhere as soon as they find an even better deal. Retailers may be able to offset low margins on some products through volume or the sales of other higher-priced goods. However, service businesses typically don’t have that flexibility and may need to stick with a fixed fee schedule to be competitive.
So how can a small business owner strike a balance between pricing and profit, yet still attract customers in these cost-conscious times?
First it’s important to understand what competitors are charging in your market area. You can charge more only if your product or service is unique or somehow better than your competitors ... or your brand is better known. To the extent you can, building added value into your products or services will allow you to command a higher price.
Learn more about competitor pricing through online research, such as a Google search, and reviewing local publications or other trade journals. Whenever possible, visit your key competitors’ places of business to see first-hand what products and services are offered and at what prices.
Once you have a better sense for competitive pricing, the next step is to compare those prices to your actual cost of doing business. It’s important to gather data on all of your costs including retail or office space, salaries, utilities, inventory, insurance, supplies, etc. Make sure these costs are accurate and account for seasonal or other fluctuations. And, of course, don’t forget to include a reasonable profit margin per item or hour. Blindly charging the same as your competitors may be inappropriate and you won’t remain in business very long if your prices only allow you to break even.
Once you’ve established your prices, monitor and adjust them as necessary in response to market trends, customer demand, changes in your costs and the competition to keep your pricing in line with your small business goals.
For help with pricing strategies or starting and growing your small business, contact Traverse City SCORE at 888-796-4913 or visit www.UpNorthScore.com to schedule a free and confidential appointment with an experienced SCORE mentor.
Kurt Schuler, a principal partner at The Old Mission Investment and Trust Companies, is a volunteer SCORE mentor with experience in finance, information technology and business operations.