How to Choose the Right Pricing Strategy for Your Small Business

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Entrepreneurship Section | 1

How to Choose the Right Pricing Strategy for Your Small Business 

By Nicholas Leighton | Edited by Chelsea Brown | July 3, 2024

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As costs rose over the last two years, companies across the globe have worked to protect their profit margins by increasing prices. For new small business owners, this has created several challenges, and many consumers are still facing the pressures as wages haven’t kept pace with inflation rates.  Many companies realize they need to be more competitive with their pricing to retain and attract new customers. For small business owners, defining the right pricing strategy can feel overwhelming.   Some tips to help you find the right pricing balance.

1. Determine your value.  Within any market, it’s essential to analyze how valuable your product is compared to others. For instance, did you use better materials, or are you solving a problem that no other product can? If so, your value may be higher than any other brand can offer, so you might be able to set a higher price. 
2. Review your customer base.  Knowing who your customers are is an essential function of any business, and it’s particularly important for pricing. For instance, are you catering to people who purchase high-end goods? Are you targeting people who are more likely to value a bargain? By performing customer research, you’ll know how to set prices better.
3. Evaluate pricing potential.  It’s important to determine exactly how much you could charge for any product. This doesn’t mean you will charge that amount, but by considering factors including your customer base, your competition and the cost to produce your product, you can determine the high end of your pricing potential.
4. Determine a price range.  You’ll need to know the minimum price you can charge for a product and still make money — the low end of your range — as well as the high point based on customer research. Once you’ve determined a range, you can adjust your prices based on peak buying seasons, discount opportunities and other factors.
5. Evaluate the competition and industry.  Your competition can provide guidance when it comes to pricing strategies. Within each industry, there are standard markups or profit margins that are typically recognized as normal ranges. Evaluating these can help small business owners understand if their costs are too high or low relative to their sales price.
6. Gather feedback from customers.  The sales volume you generate will give you insight into if you’re pricing fairly, but if you need more data, it’s always wise to talk to your customers. By providing opportunities for surveys, reading reviews or conducting direct outreach, you’ll better understand what matters to your customers and if they see value in your product.
7. Be transparent.  Consumers often want to support companies they believe are trustworthy. Shady pricing and hidden fees can damage a relationship with your customers, so it’s best to be upfront and transparent about your product pricing. If sharing your price scares away customers, it’s a good indication that you need to revisit your pricing strategy or do a better job of demonstrating the product’s value.

3 key takeaways from the article

1. As costs rose, companies across the globe have worked to protect their profit margins by increasing prices. For new small business owners, this has created several challenges, and many consumers are still facing the pressures as wages haven’t kept pace with inflation rates.  
2. Many companies realize they need to be more competitive with their pricing to retain and attract new customers. For small business owners, defining the right pricing strategy can feel overwhelming.   
3. Some tips to help you find the right pricing balance:  determine your value, review your customer base, evaluate pricing potential, determine a price range, evaluate the competition and industry, gather feedback from customers, and be transparent.

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Topics:  Entrepreneurship, Transparency, Pricing, Trust