Pricing – Where do I start with setting my prices?
This post is the first in a series about pricing, one of the key business decisions you’ll make.
The overall pricing process follows several steps:
- Develop your pricing objectives
- Estimate how much demand there is for your product or service
- Determine your input costs
- Scan the pricing environment
- Choose a pricing strategy
- Develop pricing tactics.
This post will cover the first step, developing your pricing objectives.
When it comes to any goal or strategy, its important to ensure you are working within a proven framework, and so it is recommended to always use the SMART system:
S – Specific. Make sure your objectives are specific and not vague. You want to be able to describe your objectives in one sentence.
M – Measurable. Ensure you build in some form of measurement into your objective, such as a percentage or volume.
A – Achievable. Be realistic with your objective and you are more likely to achieve it. There’s no harm in pushing yourself to a stretch goal, but make sure you have the actual capacity to achieve it.
R – Realistic. You must be both willing and able to achieve the objective you are setting up.
T – Timely. Give yourself a timeframe to work within, and engage in a review process at the end of this time to check on your progress.
There are a number of pricing objective types you can work towards.
- Sales or market share – e.g. to increase sales by 20,000 in 3rd quarter; to maintain at least 15 per cent market share in Q 1 & 2.
- Profit – e.g. to maintain a 30 per cent profit ratio; to generate $100,000 profit in 2018.
- Competitive effect – e.g. to dust the competition with lower prices right as they are introducing a competing product or service; to maintain low prices to discourage competitors from entering the same market.
- Customer satisfaction – e.g. bundle all services to simplify the decision making process for consumers; change pricing to match customer expectation.
- Image enhancement – e.g. to increase the association of quality with your brand.
Once you have established your pricing objectives, you can move to the next stage, estimating demand.
If you’re seeking expert support in setting pricing for your product or service, book a consultation with me today.