It's important to ensure the price is right
Oct 19 2009 by Irene Earle, The Journal
IF you're starting a new business, defining the pricing strategy for your proposed products or services is one of the most important decisions you will have to make.
Pricing too high or too low will have implications on your brand identity and could impact on the profitability and growth rate of your business.
Pricing should be one of the first considerations once you decide to take forward a new business idea, as this will determine how much you can afford to invest at the outset.
Some of the factors you will need to think about when pricing your products or services are the benefits to your potential customers, where your products and services stand when compared with your competitors, the selling channels you want to use, the speed with which you want to establish your product or service and, most importantly, whether you are covering your costs.
It’s not just new businesses that need to be aware of pricing – established businesses can also improve their profitability through regular pricing reviews.
Business Link has developed a useful online guide, available at www.businesslink.gov.uk/northeast, where businesses can go for support in building a pricing strategy.
The guide will help companies to work out their costs and pricing to make sure their business is profitable. It also looks at different pricing tactics and how to go about changing your prices.
Being aware of the difference between cost and value is key to increasing profitability when working out your pricing strategy – the cost being the amount spent to produce your product or service and the value is what your customer believes the product or service is worth to them.
Pricing should be calculated in line with the value of the benefits that your product or service provides for its customers, while also bearing in mind the prices your competitors charge. It can be useful to phone your rivals as a potential customer and request a quote so you can make comparisons.
Your pricing strategy doesn’t need to be set in stone and you may want to consider charging different prices to different customers – eg those who make repeat purchases or buy add-on or related products – as a thank you for their loyalty.
Business Link’s online guide also provides advice on identifying and covering the fixed and variable costs associated with your business idea and how this can impact on pricing.
For further information visit www.businesslink.gov.uk/northeast or call (0845) 6009 006.
Irene Earle, Business Link
