Small business owners generally aren’t very schooled in how to set prices for their products or services. In an era where the Internet or a phone app can tell a consumer instantly what the best price is and where to find it, how do you know where to start or how to compete?

Pricing strategy is a huge topic and a business science so there are only going to be a few basics covered here. But before you even consider pricing, you need to clearly define what other ways you plan on standing apart. If you are setting prices with the goal of being the “lowest price in town”, that’s fine. But that can be a slippery slope because consumers have a very clear way of knowing if you are offering the lowest price.

You need to know as much as consumers by finding out what the competition is charging but you also want to have a careful understanding of the net profit you have to make and the net profit you want to make. Somewhere between those two goals is a good starting point.

Offer a variety of price points. If you sell widgets, sell them in smaller and larger quantities including a “sample size” like Benjamin Moore’s paint samples. A classic service example is the basic and deluxe oil changes many auto service locations offer.

Rafi Mohammad’s must-have book on pricing, The 1% Windfall, offers these steps to determining a value-based price:

  1. Identify your target customers
  2. Determine their next best alternative to your product or service
  3. Understand how your product or service differs from the alternative
  4. Calculate your value based on that difference
  5. Do a “reality check”

Testing and inquiry are going to be a key components of your pricing strategy. Feedback from your sales team and your customers, plus hard numbers will help you know if you are on track regarding price-or if it is an issue with the product or service itself.

For more on pricing check out this Charlie Gilkey article from Inc.


by Steven Schlagel