Article by Jane Tweedy, Business Advisor, Western Sydney Business Centre
As advisors we regularly see businesses who have their pricing way off the mark, usually too low. Although most common with new businesses, even 40 year old businesses can operate without proper pricing structures. When you’re still funding an established business for normal operations, you know you have an issue. Here are some tips to help you make sure the price is right!
Tip 1 – you’re worth it!
Do you believe in yourself? If we don’t, we tend to drop our prices well under competitor pricing, and continue to drop them whenever queried. We justify this by saying we are portfolio building, trialling something new or ‘but they can’t afford it’. If you find yourself continuing to do this, you will not be doing yourself or your industry any favours.
Tip 2 – what must be included in your pricing
How did you calculate your prices? Do you know what each product or service really costs? Too many businesses can tell me they spend 17 cents on disposable gloves per customer, but don’t factor in their labour (at least at minimum wage) or allocation of overheads properly, and therefore face issues when they grow and have to hire staff. They realise they don’t actually cover costs.
Tip 3 – avoid offering discounts
A discounted price effectively becomes your new price point. Think about some of the big retail stores that offer regular 50% off sales. Do you ever buy at full price? I know I don’t!
If a customer queries your price, first consider is their justification in dropping that price. Did you articulate the value the customer is getting? This is often missing in the sales or quoting process. Customers must understand the combination of scope, quality and timeframe that contributes to the price. If you need to adjust the price, then one or more of the other factors should change. For instance, a builder may reduce the quality of a building material to offset a lower price.
Tip 4 – price rises
When did you last put up prices? When major changes to input costs occur, or at a minimum annually, review your prices. An easy way to pass on increases is to raise your prices immediately after an anticipated quiet period. Provide advance warning so people can book in the slow period at the old rates. You get bookings in your quiet period and it eases the impact to the client.
Tip 5 – packaging
Can you package to provide more value, but with minimal extra labour or material cost? Can you create products to complement your offer? Consider offering the base package, a silver package with mainly add-ons with no direct material or labour cost (might be digital downloads, ebooks, videos), and a high priced package with more materials and/or labour. Most will go for the silver.
Need help in calculating your pricing? There are many more considerations so please make an appointment to see one of our business advisors for up to four hours business advice at no cost with no catches under the NSW Government Business Connect program! Book now!