Pricing for Profit: How to Price Your Products and Services to Make Money
Working with product-based businesses I get a lot of questions around pricing, but pricing questions are important for any business. You need to master pricing for profit in your business as often I see small business owners underpricing in hopes that they will sell more of their product or service. But this can cause a lot of problems in your business, and I’ll explain why.
Especially during this time of high inflation, you need to review your prices. You need to pass off that inflation increase to the customer as well.
How to price for profit
Small business owners seem to believe that when the cost of producing their products increases, they should absorb that cost. This is not recommended. Businesses are meant to create profit, and if you let your business absorb the costs of price increases, you will put the profit of your business at jeopardy.
Small business owners are currently getting slammed from all angles. There are cost increases, manufacturing delays, and shipping issues. You need to remain diligent to remain profitable in your business.
Effective price strategies
A pricing strategy is the method you use to determine your pricing of your offers. The purpose of choosing a good pricing strategy is to maximize your profit margins to ensure the business maintains healthy profit.
You will need to examine the increase in cost to deliver your offer, whether that’s through direct labor costs, materials, and shipping costs. You’ll need to increase your prices based on increased costs but be sure to maintain competitive pricing.
Pricing strategies can be cumbersome, and I recommend you read HubSpot’s article on The Ultimate Guide to Pricing Strategies.
How often you need to review your pricing
It is recommended that you review the pricing of your products and services at a minimum of once per year. Many business owners fear increasing their prices because they are afraid of losing their customers.
Beware of your mindset that customers will get angry and stop purchasing. Price increases can be challenging, but you need to raise prices on occasion to ensure you are keeping your business profitable. Remember that periodic price increases are normal for businesses.
Look at ways you differentiate from the competition
Product differentiation allows you to stand out in a crowded market. What makes you different? Do you add value in a specific way? You need to market differently and demonstrate why you would be the better choice among competitors. This strategy allows you to sell more when attracting the right customer.
Monitor your expenses
If there are ways that you can reduce overhead costs that will increase profit margins, so look into ways to purchase in bulk and make special arrangements with suppliers to get reduced prices. Examine packaging costs as packaging costs are often an overlooked expense. Is there a way to reduce packaging costs? Focus on reducing costs over having an elaborate (and expensive) presentation of the product.
Streamline efficiencies is a great cost saving technique
Higher productivity levels mean that you are being more efficient, and with that comes saved money. Put attention on your bestselling products and increase the efficiency of manufacturing the product so that you can reduce costs. Don’t limit reducing costs for direct material. Direct labor charges can increase and be expensive as well. Is there a way to make a product more efficiently, in less time without compromising quality?
Renegotiate prices with vendors
Your selling prices with vendors can be renegotiated when it’s time to do a price increase, even when buying in bulk. Contracts can be renegotiated, and renegotiations are common, especially in times of high inflation. So don’t be afraid to contact vendors to discuss a renegotiation.
The bottom line when it comes to raising prices is that you need to price for profit. This is a regular occurrence for businesses so don’t be afraid to raise your prices. It’s up to you to show the value of your products and/or services that you offer to clients so that they keep returning. Remember that everything is going up in price and your prices need to as well.
Want to be on top of your business finances? Register for the free Path to Profitability masterclass to help you make your business the most profitable!