One of the most important #decisions for any #businessowner is what to charge for your product or service. This #AskMeOnMonday video is part 1 of a 3-part #series on #pricing. In this video, I talk about the importance of getting your pricing right from the outset and explain the difference between #cost-based pricing and #value-based pricing.
CLICK BELOW TO WATCH #ASKMEONMONDAY EPISODE 6
Top tips from this week
One of the first things a startup needs to decide is what price to charge for their product or service. There are a lot of factors to consider with pricing and this is part 1 of a 3-part series on this topic.
This week, I’m responding to this question from one of my viewers: What tips do you have for pricing your products and services appropriately and not ending up working for little or no profit?
The price you charge for your product or service is one of the most important business decisions you make:
- If your price is too low, you risk lower profitability and you may limit your ability to raise prices later and therefore limit the growth of your business.
- If the price is too high, you may be seen as non-competitive and may not hit your sales targets.
The two commonly used pricing methods are cost-based pricing and value-based pricing.
The cost of your product or service is what you pay to produce it. Costs can be fixed or variable. So put simply, cost-based pricing is when you:
- calculate your total fixed and variable costs
- divide that by the total number of units sold (or that you expect to sell) to get a total cost per unit, and
- add a % profit margin over that cost price
to come up with a price to charge your customer.
Value-based pricing is based on the value of the product or service to your customers. It’s all about what your customers are willing to pay, based on the benefits that your business is offering.
To be successful with value-based pricing as your strategy, you need to have a compelling value proposition and be able to clearly and effectively communicate that to your target market in a way that they will respond to and resonate with.
Coming up in parts 2 and 3:
In parts 2 and 3, I’ll:
- give you specifics on how to build your pricing strategy
- give you some pricing tactics that you can use when creating/tweaking your pricing strategy
- tell you how to make sure you’re making a profit
- talk about how to raise or lower your prices, and
- give you some real life examples of pricing models for a product and a service.
So stay tuned for next week!
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About the Author: Angeline Zaghloul is an expert in business strategy, client management and business processes, and is the Managing Director of Peer Business Consulting, a Sydney-based consultancy providing strategy and operations support to startups and SMEs. Angeline also publishes a regular blog which provides research, advice and tips on key issues facing businesses.