How to Set Prices When You're New in Business
One of the most difficult decisions a new business will make is pricing its products or services. Businesses realize that accurate pricing is key to capturing customer attention in a competitive market. Not only are many new companies operating with limited information about competitor pricing schemes, but they also lack the experience necessary to predict what customers will be willing to pay for a specific item.
By learning from the experts, a new business owner can get a head start on successfully connecting with customers. Here are a few techniques used by the pros that could help you determine how you should price your products.
Keep availability in mind.
Airlines and hotels are notorious for their ever-evolving prices. Availability is a large part of ticket pricing in these industries, with officials engaged in an ongoing juggling act to fill available slots without sacrificing profit. Businesses in all industries can learn quite a bit from availability-based pricing, especially in the airline industry, where seats sometimes go up in price when consumers would expect they would go down.
One major benefit to airline industry pricing is consumer awareness. Over time, passengers have learned to book flights as early as possible to get the best deals. This allows airlines to fill seats quickly, then sell the remainder at a premium to last-minute travelers like business professionals. Customers also know they can get better deals by traveling on low-volume weekdays and during months with low travel volume. In a similar manner, businesses can appeal to bargain shoppers by dropping prices during low-volume times of the year to draw bargain shoppers into their storefronts and online shops.
Research the market.
Despite companies keeping prices to themselves, it’s still possible to research the market and get enough information to accurately set prices. Price comparison tools are a great way to look at competitor prices for items that are already on the market, but if you’re bringing a new item to consumers, research will only give you a general idea of how similar items are priced. For service-oriented businesses, sites often list the going rate for various options. Search engine optimization (SEO) services, for instance, are often priced based on what a client is able to pay, but professionals can get a general idea by researching the going market rate for those services.
Market research can be a great way to find out what the market will bear. Through consumer surveys and online polls, you can ask potential customers how much they’d be willing to pay for a particular product or service. This will give you feedback on your pricing scheme before you launch your new venture.
Don't overlook costs.
One mistake many new businesses make is in inaccurately calculating prices on the front end. A business may take into account cost of manufacturing goods without including costs for shipping and fulfillment, storage, shipping materials, liability insurance and marketing. Such forgotten costs can heavily cut into a new business’s ability to make a profit.
For best results, entrepreneurs should carefully craft a budget prior to beginning. If possible, bring in an expert to help ensure you include every possible cost of manufacturing your product and getting it to market. Often an accounting professional will point out things an entrepreneur hasn’t considered, potentially catching crucial shortages that require an increase in per-item price.
For any new business grappling with setting prices for the first time, market research and expert assistance can make a big difference. By gaging the actions of competitors and considering what the market will handle, a business can position itself to meet customer demand while also staying within individual consumer budgets.
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