Pricing is one of the trickier aspects of running a business.
Too high and the phone might not ring; too low and you’re selling yourself short and not maximising your returns.
It’s affected by the return you need to cover costs and make a decent profit, as well as what the market is willing to pay.
There are many different thoughts on how to set pricing, but if you have a business that allows you to do it (new or established), experimenting with prices can lead to the best outcome.
I met some business owners recently who were working harder than ever and not making any more profit.
They deliver a service.
Pricing had been increased in the last 12 months, but hadn’t been changed for several years before that.
We had 3 problems:
1. Expenses incurred by the business had continued to rise (rent, electricity, consumables, wages, etc.)
2. Customers had grown used to the under-market pricing they had been receiving (and enjoying!)
3. The owners were working harder than ever, and had no capacity to make more sales and address the profit-squeeze they were experiencing
I sat there; listening to these business owners who deliver a great service; suggest that maybe it wasn’t worth running the business anymore.
This business had been in operation for a little over 10 years – and now here we were – the owners despondent and disillusioned about those last 10 years - and with no positive future prospects.
So we worked out a strategy around supply and demand as influenced by price.
Demand wasn’t a problem – it was through the roof and causing a high level of stress and anxiety. We needed to curb this demand slightly whilst getting a better return on the work being done.
So we published a new price-list to become effective in 60 days – we moved all pricing up to the next level, for example, $30 would be come $33; $50 would become $55.
We discussed the concept of adjusting prices to the point where demand just starts to fall away, and then you know you’ve hit the optimum price your market will pay for your product or service.
We published these prices with plenty of notice to allow customers to make an informed decision on whether to come back or not.
A quick check of the market indicated these new prices were still below market rate, so there wasn’t a problem.
We also agreed that pricing would be reviewed more often to ensure things didn’t get out of balance again in the future.
A relatively simple thing when viewed from the outside, but so many business owners are buried so deeply within their businesses, that they can easily overlook things that can make their business so much more successful – and enjoyable - to be a part of.
The owners were happy – I was happy (mainly because I’ll still get to use their service, albeit at a slightly higher price) and we get to tip the scales a little more into balance for everyone involved.