Pricing Dos and Don’tsJun 06, 2022
Today we’ll dive into business pricing dos and don’ts. Depending on your business and depending on the circumstances, you need to do some research and development. Really what it comes down to is making sure that your prices are set correctly for what you’re offering. For example, if your business is service based, it's important to price yourself correctly, based on the expertise and based on the problems that you solve.
If we go back to when we started our business, in five years’ time the services that we are offering are not the same. There have been stages of progress during that time, during each year where you're becoming more of an expert, you're becoming more educated, you're offering a better service to your clients and therefore your prices need to change accordingly.
Flipping over to product pricing which is a little trickier because you have a cost of goods. You've got a product that you need to purchase that comes from a supplier, depending on who your supplier is depends on what they charge you. Then maybe there is fright involved to get the goods to you that need to be considered as well.
Let’s start by talking about landing our products. Say you buy your product from a supplier but then you need to make a margin on top of that. And it depends how you want to price your product as well. Whether you sell your product online or at a local market you have competitor-based pricing in your marketplace. But it’s not always apples for apples because the product you’re selling might be very different from the person next door. The easiest way to price your product is to use the cost plus pricing method. This is really simple and easy to grasp and helps you keep on top of your cost of product versus your sales price.
So, say your products are scented candles and you get them from a supplier for $3 each. If you were to put a 30% margin on that, that works out to be 90 cents so the product sell price would then be $3.90. If you are working on a 50% margin, it would be half of your $3 which would be $1.50, making is $4.50 your sell price. At 100%, you're looking at doubling the cost, making it a $6 selling price, and so on. This is the simplest way to price your products. Again, depending on your product, your market, where you sit in your niche or your industry and how you want to price your products will influence how much margin you need to make to cover the costs in the business, as well as the product itself. And don’t forget labelling, postage, envelopes, padding, boxes or anything else that needs to be added into the cost of the product.
If you were operating on a 30% margin on a scented candle that you landed for $3, you're really not going to cover the costs of the business. The business running costs need to be incorporated into the product pricing for your business to not only be viable but to make a profit and stay in business for the long term. In a perfect world, you would have a markup between 30 and 50% on your products. If you don't, it could be a little bit more. And if that's the case, it could be due to things like customer service. You might want to offer your customers a money back guarantee or you might have a return policy that other competitors don't offer. Are you selling a budget product or are you selling a premium product? All these things are important to consider when looking at the pricing of your product.
Now what if we are more expensive than our competitors? It happens and it's not something to be afraid of. We have to consider what we bring to the table, whether it's products or services, what makes us better than our competitor. I really want you to consider your pricing and whether you are too expensive compared to your competitors, this is something that we really need to take a lot of care with because if we de-value ourselves, it's not actually going to help our business.
If I have no sales, does that mean my price is too high? Well, let me tell you straight up, my answer is no, but there are a few minor little things that you need to be checking. Why do you have no sales? Are you on social media? Are you advertising your products or services? Are you promoting your business in the right way? Let's look at your website, your socials and look at the products. It might pay to reach out to someone in that area of expertise and get their feedback. Get someone to do a social media audit, get someone to audit your website. Look at all the pieces of the puzzle, because it may not just be that your price is too high or too low. Maybe you're not reaching the people. Maybe you're not communicating the way that they need to be. Ask them questions what do they want, what do they need? How can you help them? How do you want to help them and look at you’re messaging and are you portraying the right things to attract the right clients?
Let's move on and talk about discounts. Discounts can be good, and they can be really bad. One of the biggest myths in business is that we should offer discounts, that we should be putting things on sale that we should be in pricing, customers and clients by doing deals. And let's be honest, how often has someone asked you for a discount? It's very common. There's a lot of retailers out there these days here in Australia, they're saying we'll beat it by 5%. So there's a competitive market out there. And when times get tough, you'll see a lot of the retailers having more sales, heavier discounts, they're all competing. I just warn you to take a little bit of caution, really think about why you're doing it and be firm. Just remember one thing when you discount, once you do it then it becomes expected.
Now to talk about reviewing our prices. Do we need to review our prices? When do we review the prices and, how? So that's really all there is to it, but to dive in just for a few moments, because I won't take up too much more of your time, you absolutely do need to review your prices, and this falls in for both products and services. So going back to the products, remember that $3 scented candle that we spoke about. The cost of that to you is going to go up at some point, depending on the arrangement that you have with your supplier. At some point, there's going to be a cost increase, whether it's due to the great freeze of 2020, whether its global financial pressure. It could be things like freight that impact price increases.
If you're in a service-based business, we're not necessarily getting increases from suppliers, but cost of goods to us are going up the services that we're supplying, whether it's using tools and platforms, and you might have subscriptions in your business, those costs do increase. You need to stay on top of those expenses because as they increase so should your price to your clients. So if you service clients on a weekly, monthly, yearly basis, don't forget to actually review your prices to your clients and make sure that you're putting in at least a CPI increase. CPI standard for an increase these days is anywhere between 2 and 3%. So at a very minimum, you should be increasing your prices to your clients by at least 2%, if not 3, every single year.
What happens if you don't price your products and service correctly? If you don't price correctly, your business will not be successful. It’s that simple. You have to price correctly. Even if it means that you're slightly over your competitors, for whatever reason. Remember that you are in business, this is business, it’s not personal. So you have to have prices on your products, you have to have a profit margin, you have to mark up the goods that you're selling, because if you don't, you won't be around for long.
Make sure that you're pricing your products and services correctly. Because trust me, when I say that it will end up with you having not only a profitable business, but also a business that encourages growth. We want a business that grows, and we want a business that's going to make us some money.