The Price Is Right

How to establish appropriate prices for your product or service
2 min read
Opinions expressed by Entrepreneur contributors are their own.

Business Start-Ups magazine, January 1998

As a start-up business, establishing appropriate prices is critical to your early success. If your prices are too high, sales will suffer and many potential customers will be alienated--perhaps permanently.

Pricing products or services too low--a temptation for many start-ups--not only impacts profits but also may preclude business from corporations and others seeking quality. Also, if your clientele is attracted by low introductory prices, what will become of that customer base once you adjust prices to market levels?

The solution? Many entrepreneurs study the market to determine what competitors charge for the same products and services. Then they set their prices somewhere in the middle range.

If yours is a specialty business or one that provides premium services--such as the upscale Best Friends Pet Resorts & Salons, you might want to take a tip from Dan Charleton, chief marketing officer for the Norwalk, Connecticut-based chain that began franchising last year.

"The first thing any pricing planner needs to do is gain a thorough understanding of who the customer is demographically," says Charleton. "If you don't know that, you can't understand who they are economically. For example, if you are starting a business, ask yourself these questions: Who are your likely competitors? What is their customer base?"

"Costs are secondary in establishing prices," adds Charleton, who has applied the same principles in establishing retail pricing for TCBY Treats, Acapulco Restaurants Inc., Denny's Inc. and Wendy's International Inc. during management stints with each chain. "Your primary consideration is the volume that can be [generated] from a satisfied customer at a given price. You must understand what the market will bear for your product or service. Do a thorough job of analyzing who the customers are, what their expectations are and how price fits into their perception of value. And recognize that price selection is relative and constantly changing."

Contact Source

Best Friends Pet Care Inc., 520 Main Ave., Norwalk, CT 06851, http://www.bestfriends.net

Paul DeCeglie is a former staff reporter for Journal of Commerce and American Banker. He can be reached at MrWritePDC@aol.com

More from Entrepreneur

Grow Your Business at Entrepreneur LIVE! Join us on Nov. 16 in Brooklyn, NY, to learn from legends like Danica Patrick and Maria Sharapova, pitch our editors, meet with investors, and potentially walk away with funding!
Register here

One-on-one online sessions with our experts can help you start a business, grow your business, build your brand, fundraise and more.
Book Your Session

Whether you are launching or growing a business, we have all the business tools you need to take your business to the next level, in one place.
Enroll Now

Latest on Entrepreneur

My Queue

There are no Videos in your queue.

Click on the Add to next to any video to save to your queue.

There are no Articles in your queue.

Click on the Add to next to any article to save to your queue.

There are no Podcasts in your queue.

Click on the Add to next to any podcast episode to save to your queue.

You're not following any authors.

Click the Follow button on any author page to keep up with the latest content from your favorite authors.