Make sure you set the right price

Mar 1 2010 Carole White, business support manager, Tedco

FOR small to medium-sized businesses, few decisions are more crucial than the price you charge for your product or service, because getting the price right can be vital to the success of your business.

If you set the figure too high, customers will be put off. Aim too low and you could be left committed to a product that makes a loss and will drain profit from your business.

Many businesses owners under-price their products and services because in theory it might seem that only the seller offering the product or service at the lowest price will do any business. In reality, the highest-priced seller might be selling the greatest number of units or have the fullest appointment schedule.

You should aim to charge as much as possible for your merchandise or services, but there are several factors to consider, including:

The customer you are appealing to

Competition

Selling for cash or credit

Willingness to accept returns

Guarantees.

You can offer the lowest prices possible, but to do so you will probably give up providing good service that others in your industry offer such as:

Personal attention

Delivery service

Prompt replacement of faulty merchandise

Unquestioned refunds.

If you don’t offer such service, be prepared to lose shoppers who are willing to pay for it.

Many start-up businesses work out a cost figure for each product and add a modest mark-up — known as cost-plus pricing. While this method is common, it is not the only way. Invest serious thought into pricing methodology at an early stage.

Pricing is based on three points:

What your product or service will be worth to your customers.

What it costs you to produce your product or provide your service.

The price your competitors charge. For example, printer ink cartridges can cost less than £5 to make. To the user who can’t print without them, their value is much higher. Invest a lot of effort into setting a price.

To find out more about ways to develop your business and enter new markets contact Tedco’s MintFresh Team on 0191 519 7498 or email mintfresh@tedco.org