Are you setting your prices for your products and services correctly? Is your pricing competitive to other companies who offer the same things you do? Setting prices for your products and services properly is very important for any small business to be successful.
There are many things to take into account when setting a price. Knowing the price thresholds of your target customer, tracking and monitoring your competitors, and understanding the potential demand are just a few things you need to consider. The good news is that you have a lot of flexibility on how you set prices. The key is setting a price where you make money.
First and foremost, your price and the volume sold needs to cover your fixed and variable costs, and also generate a profit. If done correctly, profit margins can help you grow your business and your bank account. Overpricing can reduce demand if competitors offer the same products or services for a lower price. Underpricing may attract more customers, but could lead to financial challenges and the perception by customers that your products and services are “cheap.”
You should continually be testing new pricing models. Monitoring the volume sold and profit margins for each product will help you hone in on the price that produces the greatest profit. How you set the price of your products and services could be the difference between success or failure of your small business.