How to price a product or service is one of the most common questions answered by our Business Advisors here at Small Business BC. Many hope for an instant formula to apply or a reference book to consult, but to understand how to decide your pricing, you must first understand who your market is, and how they perceive value.
You cannot simply base your price on what your competitors are selling at. Equally it cannot be purely based on a simple mark up of cost of item/service plus a percentage. Although these are both important factors, you must also understand what the customer is willing to pay. By completing this research you will save yourself from missing out on potential customers by pricing too high, and ensure you are providing yourself with the opportunity to gain the maximum profit.
Here are some things to keep in mind as you crunch the numbers:
1. Survey your market. Talk to your customers or target market and take time to ask them questions. Ask them how they value your product, and what makes them choose your business or product. It will help you build relationships with your customers as well as giving your valuable insight
2. Understand your competition. This can be an awkward question to ask a customer, but ask, "If you weren't doing business with me, where would you go?" This will help you understand how your competition is different from your business, and what your customers’ value from that difference. You may be surprised to learn who your real competitors are and what benefits they may have over your business.
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