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When the Price is Right

So, how to charge for my brilliant creation? It can be difficult to discern the right price for your products or services, especially when you're just starting out. Of course, you don't want to “price yourself out of the market”; however, you also don’t want to “sell yourself short”. To avoid such short-comings, complete a thorough analysis prior to engaging customers, who tend to shop around and become informed before they make the purchase. If your consumer is more informed than you are about your industry, your market, or your product then you are already working from a disadvantage.

Steps to Pricing
Step #1
Create a unit cost: For a good, this includes raw materials, labor costs, and other overhead costs per unit. For services, this means cost per billable hour or cost per hour minus any built-in discount per service type.

Step #2
Choose your price point level(s): basic/generic, mid-point, or upscale.

Step #3
Thoroughly research your market: Identify competition across product/service levels to identify the “fair market value.” In this step, beware of hidden costs especially if you are not hiring a professional firm to complete competitive pricing research for you. Hidden costs may include any of the following:

• regional differences
• insurance
• labor
• storage
• design
• packaging
• printing
• shipping

You may need to make adjustments for these costs in order to discern the true base cost of a product or service.

The manner in which we maximize our bottom line may differ by the nature of the industry; but, there are some methods that just about every business type can benefit from, including increasing value, reducing expenses, and winning customers. 3 Easy Ways to Maximize Your Bottom Line

Account for any significant differentiator from your competition: add a plus or minus for any manner in which your product or services positively or negatively differs from your closest competitor.

Step #5
Price accordingly. Your price should reflect the cost of production (unit cost) as well as the product quality (price point) and the competitive fit (market).

Take the Time to Get it Right
Again, take time to complete each step prior to engaging customers/clients. Ensure that your price is realistic and fair because 1) you will not make enough money to continue operations if your price is too low and 2) no one likes a cheater, so if you misrepresent your offer and cause undue stress on the market and need to “re-enter” later you may experience increased barriers to entry. Competition may find a manner to close the perceived loop hole and customers may not forgive a new higher asking price from the newcomer.

If you use a teaser rate, ensure that this is well communicated beforehand. Also, If you plan to use strategies such as price discrimination, establish a firm philosophy and supporting data as back up.

Take the Niche
Be willing to be the lowest-cost high quantity or highest-cost high quality provider, if the market dictates it. Too much of the same thing is mundane. Given two similar products, customers are more likely to remain with their current provider. However, if you offer something new and novel you are more likely to capture a part of the market.

New and novel does not mean that your offer has to be innovative, just different for your target market. For example, why open another Dunkin Donuts when there is one 0.25 miles away? The introduction of a Starbucks may serve the market better. If you serve the market better, you are more likely to see increased profits.