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Pricing can be difficult

Finding right balance can make or break business. Consider type of product; calculate your costs

”How much should I charge?”

It’s one of the first questions most small business owners ask. It’s not an easy one to answer. Setting a pricing strategy depends on many factors — among them, the type of product or service offered, costs to provide it, expected profit, customer’s location and the ”going rate” for your industry.

Finding the right balance among these factors is more art than science. Pricing too low can cut into your profits, while overpricing can hurt your business. Large companies can afford marketing staffs that spend a great deal of time trying to get the ”right” price. A small business doesn’t have that luxury.

A common error is pricing too low to attract customers. While special deals can work in some cases to get a relationship started, going low is not always the best path. Low prices can draw customers interested only in price. They are likely to abandon you the moment they find something even lower.

The low-price strategy can be a fatal game. Raising prices after you have established a low base is often difficult, if not impossible.

Low prices designed to attract customers can be even more precarious for service businesses. You have only so many hours to sell. Your business can’t make it up in volume like a retailer, who still profits from lower prices if volume is high enough.

Competing only on price is not a sustainable business model. It must be combined with other products or services to yield adequate profits. Quality and service are other distinguishing factors.

Pricing is an ongoing process, so test your pricing periodically. You might need to adapt to changing conditions. Competitor prices, your own costs, customer perceptions and your profit expectations can all change. Or you might want to simply test different pricing levels to see what works best for your business.

Research the norms for your industry, including price ranges across your market area. You might want to charge more or less, depending on your product or service.

Make sure you use timely and accurate information to calculate your costs for labor, supplies and direct and indirect overhead for every product or service you offer. ”Guesstimates” are not good enough and might cost you far more than the time of your research. Also take into account seasonality that might cause short-term cost or increase fluctuations.

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