Developing a successful pricing strategy could be exactly what your business needs post-lockdown
In this tumultuous time, small businesses are encouraged to reflect on their current strategies in order to restructure and rebuild their business for the ‘new normal’ – whatever or whenever that may be.
While there will be many aspects of business strategies for reconsideration, the one that will likely make the most difference to your profit margin will be the pricing strategy. Tempting as it may be to lower your prices drastically in order to make up for lost business, your pricing strategy should be carefully considered in every stage of your restructure to ensure you maximise the benefits of creating or returning to business.
Here are 5 things you should consider when pricing your services;
1. Pricing should always be a part of the creative process
As business owners or service providers, we are familiar with the process of creating and marketing a new product or service – but how many of us wait until the final stage of development to put a price tag on it? To ensure you place an accurate value your product or service it’s better to start the process with a price in mind and consistently re-evaluate before presenting to prospective customers.
2. It’s all about perception
The impression prospective customers get from your product or service is often based on the price and its perceived value – which means dropping your prices could actually have a negative impact on the perception of your product. Accurately valuing your product or service means prospective customers will have a positive perception of your business and what it can offer.
3. Too much choice is a bad thing
It can often be tempting to offer a variety of choices for pricing plans, however, a study into the psychology of choice in sales saw a drastic increase in conversion when the choice of products was limited (Psychology in Marketing and Sales, by Darren Hignett). So, try to pick 1 or 2 variations on price and stick to them.
4. A 5% price increase could lead to a 14% increase in profit contribution – even if sales decrease!
Let’s use an example: If my product costs £75 to produce and I normally sell it at £100 my gross margin (GM) is 25%. If I increase my sale price to £105 my GM becomes 28.57% (£30 margin/ £105 sales) which is a 14.28% profit increase per unit sold. Even if my sales drop by 5%, my profit is still higher!
5. Never underestimate the importance of pricing
Devising a successful pricing strategy is essential for the growth of your small business and learning to truly value your own products or services will help your prospective customers to have a positive perception of your business.
If you would like to learn more about how to price your services for profit you can attend a FREE webinar session with pricing expert Darren Hignett.
This article was written in collaboration with Darren Hignett. You can find out more about Darren and his services on his website: https://www.thinktwicemarketing.com/