Small Business Finance – How To Find The Right Price For Your Product Or Service

NAME YOUR PRICE; I JUST GOT TO HAVE IT! Sweet music to our ears when a customer asks us to just name our price.

What possesses a customer to act like this? And, how can I duplicate this feeling for my other customers?

First: The above example happens a million times a day. Every time we purchase something this feeling is occurring on some level. Usually, we look at the price, determine if it’s a good value, and then purchase or not purchase based upon our internal value judgment.

Second: The real trick is determining the variables your customers are using to make their value judgment. Knowing these variables allows you to determine the range of acceptable prices for your product or service.

Examples of variables involve the five senses, psychological factors (prestige, security, and acceptance), convenience, availability, etc.

Earlier, we talked about profiling your customers. A part of your profile should now include the variables involved in their buy decision. If your product or service has strong variables (ones with direct triggers to emotional variables) to work with, you have an easier time determining your price range. Weak variables force you to use more marketing tools to move the customer to a buy decision.

An example is The Club a device which locks your steering wheel. Their advertisement shows someone breaking a window and stealing a car capitalizing on a big violation and fear component. They then supplement that violation and fear with their strong name and police endorsement.

Third: Price should reflect the type of relationship you want with the customer. If you want a relationship with your customers built upon high quality. Then provide yourself with enough margin, the difference between your cost and your price, to provide the extras that are needed in that type of a relationship. It will take time, follow-up, and a great product/service to establish a high quality relationship. Also, you will not be able to maintain a large customer base so your profit must come from a smaller loyal customer base influencing an increase to your price.

Fourth: Pricing is your tool to motivate the customer to the behavior you want.

Whatever challenges you are facing in your business, pricing can usually be a tool to help you meet them. It is one of those versatile tools much like your favorite tool around the house. If you are having trouble scheduling customer projects to maximize your billable time, then offer discounts for customers willing to schedule out further. If you have too much inventory, then offer a clearance sale to get rid of it. If you are just too busy, raise your prices to handle the overtime or to just make it more worthwhile to you – while also slowing down the number of customers coming to you.

Pricing is neat, handy, AND when well thought out; it is a very powerful tool.

Fifth: Approximately 30% of US shoppers are categorized as price sensitive shoppers within any given industry. These are shoppers who like to bargain and will travel across town to save on a purchase. These shoppers are not loyal to a business. If someone comes in and asks for a great price on their first order because more orders will follow expect them to ask for another great price on the second, third, etc. Instead of saying no to them, explain that your policy is to offer discounts based upon quantity, loyalty, and timing. Avoid saying “no” whenever possible, use your pricing tool to allow the customer to decide whether your solution is right for them.

The good news is 60% of shoppers are value buyers and 10% are prestige buyers!
Lastly: How do you know when your price is the right price? When customers who should say no to you, do say no, realize that it is a good thing. If no one is objecting to your price then you are pricing too low. Be prepared to handle their objections by anticipating them and having your explanation ready.