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Developing a pricing strategy

The price you charge for your product or service is one of the most important business decisions you make. Setting a price that is too high or too low will – at best – limit your business growth. At worst, it could cause serious problems for your sales and cashflow.

If you’re starting a business, carefully consider your pricing strategy before you start.

Established businesses can improve their profitability through regular pricing reviews.

  • Do you know what your goods or services cost you to provide, and what they are worth to your customers?
  • Have you worked out your fixed and variable costs, and what you will need to charge to break even if you take both in to account?
  • Have you decided whether to use cost-plus or value-based pricing?
  • Do you know what your competitors offer and what they charge? It’s probably unwise to set your prices too much higher or lower than your competitors without a good reason. If you price too low, you will just be throwing away profit. If you price too high, you will lose customers, unless you can offer them added value. Always consider how your prices compare to the overall market, and think about what you would look for as a customer.
  • How do customers see your product or service? In many markets, a high price means that customers will see your product as being of premium value. This might encourage customers to buy from you but it might also stop price-conscious customers from doing so. Researching your market and gathering feedback from customers may help you understand how your products are perceived.

Related Documents

Pricing Strategies (Word.Doc file)