The Most Critical Product Pricing Principles

|| For Freelancers & Entrepreneurs |

Establishing the perfect prices for your products or services is one of the key inputs to a successful business. Discovering that sweet spot that will deliver optimum value for your customers and your operations is like discovering a vein of gold.

There are basically three methods in formulating prices: cost-based pricing, competition-based pricing, and customer-based pricing. Cost-based pricing considers the total cost of producing or delivering a product plus a markup or profit for the business. Competition-based pricing considers how a product under a particular brand compares with an identical product from a competitor. Customer-based pricing is based on how much value a customer imputes ion a particular product or service.

Furthermore, here are some tips that can help you set your product or service prices right.

1. Establish at the onset that your pricing is intended to make money for your business and that an ineffective pricing can do just the opposite of making money.

2. Never set a price too high or too low in an attempt to gain a competitive edge in the market. Both can eventually lead to cash flow problems later on.

3. Align your prices with how much value it delivers to your customers. To do so, you need to really know how your customers perceive your products or services and how important these are to them.

4. Always set a competitive price that avoids radical differences (i.e., too high or too low) from those set by your competitors.

5. Implement consumer-friendly pricing cuts such as sales, discounts, coupons, bulk deals and other marketing techniques.

6. Recognize that while product pricing is a critical business input, it is not the only thing that helps businesses achieve success.