HOW TO DETERMINE YOUR PRODUCT OR SERVICE PRICING

Oftentimes entrepreneurs struggle with determining how to fix their products and/or services pricing. This is perhaps the most daunting hurdle for some entrepreneurs, and understandably so. Mostly because, as an entrepreneur, you want to acquire customers without scaring them away with high prices. But you also do not want to leave money on the table. I mean, you are a businessperson, and it wouldn’t be wise to leave money on the table when it can be made.

This brings us to the main discussion point here: How do you determine the right price points for your business products and/or services? Before we get to that, speaking of services, what we do at Damisrael Solutions is to provide business strategic planning, HR consulting, and business therapy for business owners, entrepreneurs, business managers, and professionals. Now let’s get back to our discussion for today. You can schedule a free consultation with us here. Find out how we can help position your business for success in today’s dynamic business landscape.

Generally, when trying to fix the right price points for your products and/or services, you would need to consider the value that your products and/or services bring to your customers. How do your customers perceive your product or service? In determining this, you might find that the perceived value of your product is actually lower than the actual value of your products and/or services. In this situation, the most likely problem is in your product and/or service branding. We will talk about this in another post. Let’s focus on getting your business pricing right.

Factors to Consider When Determining your Product or Service Pricing

Now, apart from your product value, other factors you would generally need to consider in determining your product and/or service pricing would be your unit economics. Say the following:

• Your Cost of Goods and/or Services Sold (COG(S)): These are the associated costs of actually creating your products and/or services. For instance, if you are into bread production, your COGS would include the cost of flour, butter, and other items used in producing the bread.
• Time taken to produce the product and/or service: This is an intangible factor and often relative. By implication, the time it takes you to produce a product and/or service depends on three major factors, which are:
  • Your skill and expertise in creating the product and/or service. In order to decide this, you need to consider factors such as: how efficient are you in the knowledge of creating this product or service? Are you a beginner, intermediate, or expert in your business’s core product or service?
• • Your hands-on experience developing the product and/or service
  • Your available resources to produce the product and/or service. Other factors you need to consider in this regard are whether you manufacture the raw materials in-house or you source them from external suppliers. Is there any aspect of the production process that you outsource or that you control all the aspects of the production chain?

Generally, the more of these factors you have, the less time it will take you to create your product and/or services. And also, the higher your negotiating power will be in fixing your pricing.

• Other expenses incurred in getting your products and/or services to your customers: This is another factor you should put into consideration when fixing your price points. This factor includes elements such as your selling, general, and administrative expenses. Otherwise known as S, G, & A. They include your marketing expenses, overhead expenses such as electricity and utilities, and administrative expenses such as your staff salaries. For startup businesses, factors such as your app subscriptions and hosting would also be considered here.

Depending on your business size and operating model, your S, G, & A can vary markedly. For instance, if you are the only one running your business, you may not have to worry about paying your staff. But you should have a fixed amount you pay yourself. This will help you control your personal and business expenses. We will talk about this in better detail in another post.

Now, having said all these, there is one more important factor to look into. It is that factor of affordability on the part of your customers. This factor often gets many entrepreneurs, and it is much simpler after all. The truth is, all the factors highlighted above would mean nothing if they could not get you the price points that your customers could afford.

So, what do you do when your customers can’t afford your pricing? If you have successfully done your due diligence with the above factors and your target customers still can’t afford your product and/or services, there is only one implication this amounts to: you are targeting the wrong customers. The truth of the matter is that the thing about having the right price for your products and/or services is only a factor when your customers cannot afford your pricing. What you do in this situation is simply to switch your target customers. Start targeting your products and/or services towards the market segment that can afford it. Those people exist, and you will find them if you look for them.