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Four Questions to Ask Before Setting a Price

February 9, 2012

As a consultant helping businesses figure out pricing strategies, too often I see companies want to tinker with prices before understanding the overall strategies that should guide such decisions.

Basically, they put the cart before the horse.

Prices should always be based on how much customers actually value the products or services. But how can you know what that is when you don't even know what your business should be?

In the case of a mom-and-pop business owner -- someone who runs a convenience store or a tire shop or a restaurant -- the goal is to simply put food on the family's table. Such business owners obsess over how to get the most out of their pricing, but I also find they're prone to overlook the bigger picture.

You need to know your company strategy first. Your pricing strategy then follows your business strategy.

Related: How to Survive a Price War

Here are four strategic decisions small-business owners should make before they start tinkering with prices:

No matter what, don't rush to lower prices -- because it will be extremely difficult to raise them down the road. Think out your business strategy first.

Related: Why You Don't Want to Be the Low-Cost Leader