It is a familiar scenario: you have made the decision to start your own business. You have spent months researching industries, deciding what type of business would be the most profitable, and you have laid out a business plan to achieve your goals. You think you are ready to begin, yet you realize you do not have a pricing strategy in place. Here are some tips for setting successful prices that will help your business thrive.
Decide if You Want to Convey Quality or Value
Typically, in a customers mind, prices that end in the number nine mean they are getting the best value. On the other hand, prices that end in the number zero often signify quality. For example, a carpet cleaning business restaurant may set its prices at per square foot, in line with what others are charging. An auto detailer might charge a premium rate to attract customers with high-end cars.
Ultimately, you may not sell more items just because the price is lower; it is how customers view the price in terms of quality or value that counts. Then again, you must also make practical considerations. While the auto detailers strategy is likely to cover operating and equipment costs, the carpet cleaner has to worry about whether his pricing will cover the cost of truck mounts, other cleaning machines and supplies. When deciding on pricing for your business, remain flexible and consider the following pricing strategies.
Price by Quantity
Consumers are typically more likely to purchase multiple items at a set price. When you suggest a total number of items for a smaller, reasonable price, they will buy the bundle because they feel like they are getting a sale price.
Charge a Monthly Fee
If you charge customers payments every month, they are more likely to use the product or service more often and increase their satisfaction over time. Conversely, if you only charge a one-time, upfront fee, after a while your customers may feel that because they already paid for it, they will not use it as much. With the latter, you risk losing customers who no longer feel as satisfied with the product as they did when they first purchased it.
Offer an Option for Multiple Payments
This tip is similar to offering a monthly payment plan, but instead of doing it on a month-to-month basis, divide a large payment into equal installments. Subconsciously, customers will only reflect on the lower payment price at first, not the sum of all of the payments. For example, a new flat screen television may be priced at $119.96, but if you break the total cost down into four “easy” payments, $29.99 seems much more appealing to the buyer.
We have all seen the infomercials on television that offer you a main product and then add smaller items of lesser value to the bundle. Consumers think that the item is worth more, simply because there are extra products included with the purchase.
Scope out the Competition
Use the average price of a competitors product to set a baseline for your own. Raise your price accordingly if your product or service has specific features that the other does not. Similarly, you can lower your price if you feel that the competition has a leg up on you. This pricing strategy engages the consumer in making a decision as they ask themselves whether the features are important to them, and whether or not they are worth the price.
Base Your Price on Convenience
You should absolutely charge a higher price if your product or service does things or provides features that others do not. For instance, if your product is readily available, easier to use or comes with a higher level of service than similar products on the market, people will pay a higher price for the convenience of using it.
Rotovac is a provider of carpet, upholstery, title and grout cleaning equipment for small cleaning businesses across the country.