An Entrepreneur's Guide to How To Price Your Products And Services

02 SEP 2010

Most new entrepreneurs believe that their price is calculated by adding all the costs required to deliver a given product or service to the margin they want to earn per product or service delivered.

The truth is that prices aren’t determined by the owner of a business. They are determined by the customer of a business. Business owners determine cost. Customers determine price based on how much they are willing to pay.

To discover the best price for your product or service:

  • Explore the prices of your competitors. What are they selling and how much are they charging.  How does their brand effect their price.  If their offering costs less and delivers the same value to the customer, how will you justify a higher price?
  • Present your product or service to customers at your specified price, at a slightly lower price and at a slightly higher price. Experiment with bundling your products and services to create packages of greater value. Try varying your price based on where it is purchased.  Online purchases, for example, usually cost less than purchases made in a store.
  • Look at the pricing for products that replace your product.  For example, if you sell Sari’s you may find that your product sells at prices comparable to a dress, though they are an entirely different garment.  Kilts may be priced comparably to pants.
  • If your product has no direct competitor, and no comparable products seem to exist, price it based on what it costs not to own it. For example, if you sell a new wind turbine, you can price it in line with what it would take to produce comparable amounts of electricity another way.

If your product or service isn’t selling at any price, you need to sit down with a number of customers to find out why what you have to offer is not what they want to buy.  You don’t have a pricing problem, you have a product or service design problem.

  1. Good Read Made a lot of Sence.

  2. Bundling products has helped reduce our headline price, whilst retaining margins. The fact that this allows us to sell additional products to existing clients also helps to secure the client relationship, which removes some of the emphasis on price.